Assignment Questions: (Marks- 10) 1.Explain how real options are similar to, but

Assignment Questions: (Marks- 10)
1.Explain how real options are similar to, but different from, ordinary options. (250-300 words) 2.5 Marks
2.Explain why an option’s time value is greatest when the stock price is near the exercise price and why it nearly disappears when the option is deep- in -or out- of -the money. (250-300 words) 2.5 Marks
3.Stock currently priced at $100. One period later it can go up to $120, an increase of 20 percent, or down to $90, a decrease of 10 percent. Assume a call option with an exercise price of $100. The risk- free rate is 8 percent. Calculate the Theoretical fair value of the call. (5 Marks)