Question

# A call and a put option both having a strike price of \$50 and maturing after...

A call and a put option both having a strike price of \$50 and maturing after 6 months have premiums of \$4 and \$2.20, respectively. An existing long forward contract with a delivery price (old forward price) of \$50 will have a value of?

Given in the question
Strike price i.e (E) of both the call and put option is \$50
Premium for both the option are \$4 and \$2.20 respectively.
We take that Current stock price i.e (S) is also \$50 by assuming that the data provided about the existing long forward contract with delivery price of \$50

When both the E and S are equal then it means that both options are "at the money". If in call option S>E then call is "in the money" and if S<E then call is "out of the money" and in put option it is vice versa.
When S=E then intrinsic value of call as well as put is Zero.

In our question values are-
E=\$50
S=\$50

Hence intrinsic value for call= S-E
=50-50
=0

Intrinsic value for put= E-S
=50-50
=0

Value of long forward contract will be Zero.

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