Question

You are considering purchasing a call option on a stock with a current price of $31.59. The exercise price is $33.1, and the price of the corresponding put option is $3.81. According to the put-call parity theorem, if the risk-free rate of interest is 1.6% and there are 45 days until expiration, what is the value of the call? (Hint: Use 365 days in a year.)

Answer 1

     

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As per Call Put Partiy

Strike Price * e^(-r*t) + Premium on Call Option = Current Value of Stock + Premium on Put Option

where r is the risk free rate of return i.e. 0.016

t is the time period 45/365 = 0.12328767123

33.1 * e^(-0.016*0.12328767123) + P = 31.59 + 3.81

33.1 * 0.99802934157 + P = 31.59 + 3.81

33.034771206 + P = 35.40

P = 35.40 - 33.034771206

P = 2.37