Question

A stock is currently selling for $60 per share. A call option with an exercise price...

A stock is currently selling for $60 per share. A call option with an exercise price of $67 sells for $4.49 and expires in four months. If the risk-free rate of interest is 2.7 percent per year, compounded continuously, what is the price of a put option with the same exercise price?

Homework Answers

Answer #1

Using the put call parity formula to value the same :

Call premium = $4.49

Interest rate yearly = 2.7%

PV of exercise price : Using the formula embedded in the image : $67 / (1+2.7%)^(4/12) = $66.41

Spot price = $60

Putting these values in formula and assuming price of put option be X

$4.49+ $66.41 = $60 + X

X = $10.90

The put option with the exercise price of $67 will sell for $10.90

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