General Instructions – PLEASE READ THEM CAREFULLY The Assignment must be (WORD f

General Instructions – PLEASE READ THEM CAREFULLY
The Assignment must be (WORD format only) via allocated folder.
Students are advised to make their work clear and well presented; marks may be reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism)
Use at least 3 references as APA style + the attached file.
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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 is 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)