Question

A stock is currently selling for $74 per share. A call option with an exercise price of $79 sells for $3.70 and expires in three months.

If the risk-free rate of interest is 3.4 percent per year, compounded continuously, what is the price of a put option with the same exercise price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Put price

$

Answer 1

As per Put Call Parity Theory :

Value of call + present value of Excercise price = Value of put + Value of share

In given question:

Value of call = 3.70

Value of Share = 74

Value of Exercise price = 79

Present Value of exercise price = 79 * e^(-0.034*3/12) = 78.33

Inserting above value into equation

Value of call + present value of Excercise price = Value of put + Value of share

3.70 + 78.33 = Value of put + 74

Value of put = 82.03 - 74 = 8.03

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