Question

Hennepin stock currently sells for $38. A one-year call option with strike price of $45 sells for $9, and the risk-free interest rate is 4%. Using put-call parity, what is the price of a one-year put with strike price of $45 (using continuous compounding)?

Group of answer choices

a. $9.00.

b.$12.89.

c. $13.77.

d. $14.24.

e. None of the above.

Answer #1

**Solution.>**

We have we have the following information for a call and a put option:

Exercise price: $45

Call option price: $9

Put option price: ?

Risk-free rate: 4%

Current market price: $38

Time to maturity: 1 year

Let’s plug these values in the put-call parity equation:

**Call + Exercise Price *
e ( -r * t) = Put + Currrent Stock Price**

9 + 45 * e^(-0.04*1) = P + 38

52.235 = P + 38

**Put option price = 14.24**

**Hence, the correct option is (D).**

*Note: Give it a thumbs up if it helps! Thanks in
advance!*

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