2. (a) The stock of Huesca Hardware trades for €142 per share. The share prioe has price volatility of 25%. Huesca Hardware has no plans to pay dividends over the next six months. The risk-free rate is 5% per Knnum with continuous compounding. Use the Black-Scholes option pricing model to compute: the price of a 6-month European call option written on the stock with a strike price of €125. (i) the price of a 6-month European put option written on the stock with a strike price of e150. (b) Use put-call parity to compute the price of a 6-month Europcan put option written on the stock with a strike price of e125. (i) the price of a 6-month European call option written on the stock with a strike price of €150. (c) Pierre expects the price of Huesca Hardware's stock to fall over the next six months. Use the opticns otetions For this strateos

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.