Question
You are given (1) A stock's price is 45. (2) The continuously compounded risk-free rate is...
You are given
(1) A stock's price is 45.
(2) The continuously compounded risk-free rate is 6%.
(3) The stock's continuous dividend rate is 3%.
A European 1-year call option with a strike of 50 costs 6.
Determine the premium for a European 1-year put option with a strike of 50.
Homework Answers
Answer #1
Using Put Call Parity equation we can compute the premium of Put option:
where,
P = Put Premium ( Cost of Put)
C = Call Premium ( Cost of Call)
X = Strike Price
S = Current Stock Price
r = risk free rate
d = dividend rate
t = maturity in years
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