Question

Using the Black-Scholes option valuation, calculate the value of a put option under the following parameters:

The underlying stock's current market price is $40; the exercise price is $35; the time to expiry is 6 months; the standard deviation is 0.31557; and the risk free rate of return is 8%.

A. $8.36

B. $1.04

C. $6.36

D. $2.20

The current market price of one share of ABC, Inc. stock is $62. European style put and call options with a strike price of $60 are currently selling for $1.25 and $5.50, respectively and both options have an expiration date of 12 months from today. Based on put-call parity, what is the risk-free rate implied by this investment?

A. 3.9%

B. 16.3%

C. 5.11%

D. 4.25%

Answer 1

1.
1.04

2.
=X/(S+P-C)-1
=60/(62+1.25-5.50)-1
=3.89610%
=3.9%