A stock price is currently $ 100. Over the next two six-month periods it is expected to go up by 10% or go down by 10%. The risk-free interest rate is 8% per annum with continuous compounding.
(i) What is the value of a one-year European call option with a strike price of $ 100.
(ii) What is the value of a one-year European put option with a strike price of $ 100.
(iii) Verify that the European call and the European put satisfy put-call parity.
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