Question

Suppose Big Electronics’ stock price is currently $70. A
six-month European call option on the stock with exercise price of
$70 is selling for $6.41. The risk free interest rate is $7%.

What is the six-month European put option on the same stock with
exercise price of $70 if there is no arbitrage?[x] (sample answer:
$5.40)

Answer #1

We can compute Put option price using Put-Call parity equation:

where,

C = Call price

X = Strike price

S = Stock price

P = Put Price

r = risk free rate

t = time to maturity

We can rewrite above equation:

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Suppose that a 6-month European call A option on a stock with a
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Use put-call parity to explain how would you construct a
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arbitrage?
2) If the call option is currently selling for $2, what
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