Question

Current stock price of underlying asset = $80
Standard deviation of returns of underlying asset = 30%
Strike price of call option = $85
Time to expiry of call option = 6 months
Price of call option = $5.53
Risk-free rate = 5%

The price of a corresponding put option is closest to

Group of answer choices

A) $3.3

B) $6.1

C) $8.4

D) $9.9

Current stock price of underlying asset = $80
Standard deviation of returns of underlying asset = 30%
Strike price of call option = $85
Time to expiry of call option = 6 months
Price of call option = $5.53
Risk-free rate = 5%

The time premium of the call option is closest to

Group of answer choices

A) $3.3

B) $4.1

C) $6.9

D) $5.5

Answer 1

Put call parity equation :

call price(c) + strike price (k) = put price (p) +stock price (s)

=> C+X*e^-t×r= P+S

We calculate the given two problems with the above formula =>

First question :-

=> $5.53+85×e^-(5/100)×6/12 = P+$80

=> $5.53+85/1.025=P+$80

=>$5.53+$82.92=P+$80

=>$88.45=P+$80

=> P = $88.45-$80

=> Put price is equal to $8.45

Second question :-

Time premium of option = option price - intrinsic value of option

Intrinsic value of option = strike price of option+current stock price

From the above, the intrinsic value of call option will be => $82.92-$80

= $2.92

Time premium of option

=> Option price - intrinsic value

= $5.53 - $2.92

= $2.61