Question

Netflix is selling for $100 a share. A Netflix call option with one month until expiration and an exercise price of $105 sells for $2 while a put with the same strike and expiration sells for $6.94.

a. What is the market price of a zero-coupon bond with face value $105 and 1-month maturity? (Round your answer to 2 decimal places.)

b. What is the risk-free interest rate expressed as an effective annual yield? (Round your answer to 1 decimal place.)

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

As per put-call parity

P+ S = present value of X + C

P= value of put option.

S= current price of the share

X= strike price

C= value of call option.

Present value of X = X/e^r

r = risk free rate.

Given:

P= value of put option = 6.94

S= current price of share=100

X= strike price = 105

Present value of X = 105/e^(r/12)

r = risk free rate.

C = Call option value = 2

6.94+100 = (105/e^(r/12))+2

r= 0.68%

r= 0.7% (Answer).