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1. The risk-free rate is 10%.Assume that options on a non-dividend paying stock with price of USD 100 have a time to expiry of half a year and a strike price of USD 110. Further, , the Black-Scholes values of these option Is closest to：
A. Value of American call option is USD 6.56 and of American put option is USD 12.0
B. Value of American call option is USD 5.50 and of American put option is USD 12.0
C. Value of American call option is USD 6.56 and of American put option is USD 10.0
D. Value of American call option is USD 5.50 and of American put option is USD 10.0
Answer: A
We know that American options are never less than corresponding European option in valuation. Also, the American call option price is exactly the same as the European call option price under the usual Black-Scholes world with no dividend. Thus only ‘a’ is the correct option.
