Describe the concept of Hedging. Then describe the concept of Swaps. How can Sw

Describe the concept of Hedging. Then describe the concept of Swaps. How can Swaps act as a hedging instrument? Explain.

The current price of a stock is $40. In 1 year, the price will be either $60 or $30. The annual risk-free rate is 5%. Find the price of a call option on the stock that has an exercise price of $42 and that expires in 1 year. (Hint: Use daily compounding.)

Use the Black-Scholes model to find the price for a call option with the following inputs:current stock price is $22.

strike price is $20.

time to expiration is 6 months.

annualized risk-free rate is 5%, and

standard deviation of stock return is 0.7.