Question

A call option with 1 month to expiration currently sells for $0.70. A put option with...

A call option with 1 month to expiration currently sells for $0.70. A put option with the same expiration sells for $1.10. The options are European style. The risk-free rate is 3 percent per year and the strike price of both options is $17.50. What is the current stock price?

Select one:

a. $17.06

b. $17.63

c. $17.29

d. $17.86

e. $16.87

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Homework Answers

Answer #1

We will solve the question by using the put-call parity formula :

Let the current stock price be X.

Call premium = $0.70

Put premium = $1.1

PV of strike price : As per the formula given in the image above : = $17.5 / (1+3%/12) = $17.46

Putting the above values in the formula :

0.70 + 17.46 = X + 1.1

X = $17.06

OPTION A

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