A oneyear call option has a strike price of 60, expires in 6 months, and has a price of $2.5. If the riskfree rate is 7 percent, and the current stock price is $55, what should the corresponding put be worth?








Given,
Strike price = $60
Maturity(n) = 6 months or 0.5 year
Call price = $2.5
Risk free rate (r) = 7% or 0.07
Current stock price = $55
Solution :
Put = Call price  Current stock price + [strike price (1 + r)^{n}]
= $2.5  $55 + [$60 (1 + 0.07)^{0.5}]
= $2.5  $55 + [$60 (1.07)^{0.5}]
= $2.5  $55 + [$60 1.03440804]
= $2.5  $55 + $58 = $5.50
Thus, the corresponding put should be worth $5.50
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