Question

# The current price of a stock is \$ 57.85 and the annual effective risk-free rate is...

The current price of a stock is \$ 57.85 and the annual effective risk-free rate is 8.7 percent. A call option with an exercise price of \$55 and one year until expiration has a current value of \$ 6.64 . What is the value of a put option written on the stock with the same exercise price and expiration date as the call option? Show your answer to the nearest .01. Do not use \$ or , in your answer. Because of the limitations of WEBCT random numbers, some of the options may be trading below their intrinsic value. Hint, to find the present value of the bond, you do not need to make the e x adjustment, simple discount at the risk free rate.

As per put-call parity

P+ S = present value of X + C

P= value of put option.

S= current price of the share

X= strike price

C= value of call option.

Present value of X = X/(1+r)

r = risk free rate.

Given:

P= value of put option = ?

S= current price of share= 57.85

X= strike price = 55

Present value of X = 55/(1.087)

r = risk free rate. 8.7%

C= value of call option = 6.64

P+57.85 = 55/(1.087)+ 6.64

P= -\$0.61

Value/Price of put option = -\$0.61

(Option value cannot be negative, there is some error due to limitations of WEBCT random numbers).