Question

A put option that expires in six months with an exercise price of $54 sells for $4.31. The stock is currently priced at $59, and the risk-free rate is 4.4 percent per year, compounded continuously. What is the price of a call option with the same exercise price?

Answer 1

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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/e^r

r = risk free rate.

Given:

P= value of put option = 4.31

S= current price of share=59

X= strike price = 54

Present value of X = 54/e^(4.4%×6/12)

r = risk free rate. 4.4%

4.31+59 = 52.825+C

C= 10.485

Value/Price of call option =$10.49 (Answer).