The price of a certain security follows a geometric Brownian motion with drift parameter mu=.05 and volatility parameter sigma =.3. The present price of the security is 95.
(a) If the interest rate is 4%, find the no-arbitrage cost of a call option that expires in three months and has exercise price 100.
(b) What is the probability that the call option in part (a) is worthless at the time of expiration?
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