1 answer

Question8 4 points Current stock price $55 Option time to maturity-0.5 Option exercise price- $60 Interest...

Question:

Question8 4 points Current stock price $55 Option time to maturity-0.5 Option exercise price- $60 Interest rate-10% Call pric

Question8 4 points Current stock price $55 Option time to maturity-0.5 Option exercise price- $60 Interest rate-10% Call price $3 Given the data above what is the price of a Put option with the same strike and time to maturity as the call option above? O a. $3.43 b. $6.09 О с. $5.07 d. $9.67

Answers

As per put call parity theory

Value of call option + Present Value of excercise price = Value of put option + Current market price

Value of call option = $3

Excercise price = $60

Time = 0.5

Interest rate = 10%

Interest rate for 0.5 period (r) = 10% *0.5 = 5%

Continuous compounding rate (e^0.05) or (1+r) =1.05127109638

So, P.V. of E.P. = excercise price/(1+r)

60/1.05127109638

=57.07376547

Current market price = $55

So, as per put call parity

3 + 57.07376547 = Value of put+55

Value of put = 60.07376547 - 55

=5.07376547

So, Value of put option is $5.07

note (1)

e^0.05 = 1 +. ( (0.05)^1) /1 + ((0.05)^2 / (2*1)) + ((0.05)^3 / (3*2*1)) + ((0.005)^4 / (4^3*2*1)

= 1.051271096

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