Question

You are presented with the following information: You can buy calls and/or put options on a...

You are presented with the following information:

You can buy calls and/or put options on a stock with a current price of $59.00. The striking price for either option is $61.00. A call option with that striking price has a current value of $6.20. The prevailing risk-free rate is 6.00%. What must be the current value of a put option on the stock? Both options (calls and puts) written on the same stock and both with 1 year until expiration. *** In your calculations, use simple discounting instead of continuous discounting. Also, do not enter the dollar sign and use two decimals (round off to 2 decimals).

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Step 1 - Concept - Put call parity

As per Put Call Parity (PCP)

Price of call option + Present Value of strike price = Price of Put option + Current Stock Price

Present value of strike price = 61 / 1.06 = 57.5471

Step 2 - Putting the values in the above equation

Price of call option + Present Value of strike price = Price of Put of Put + Current Stock Price

6.2 + 57.5471 = Price of put option + 59

Price of put option = 4.7471

Therefore value of put option = 4.7471

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You are presented with the following information: A call option with a current value of $10.80....
You are presented with the following information: A call option with a current value of $10.80. A put option with a current value of $8.60. Both options written on the same stock and both with 1 year until expiration. The current price of the stock is $46.00 and the prevailing risk-free rate is 7.00%. What must be the striking price of either option? *** In your calculations, use simple discounting instead of continuous discounting. Also, do not enter the dollar...
Consider a put option and a call option with the same strike price and time to...
Consider a put option and a call option with the same strike price and time to maturity. Which of the following is true? (5 points) It is possible for both options to be in the money. It is possible for both options to be out of the money. One of the options must be in the money. One of the options must be either in the money or at the money. When the stock price increases with all else remaining...
Consider two put options written on ABC Inc.'s stock. The first put, P1, has an exercise...
Consider two put options written on ABC Inc.'s stock. The first put, P1, has an exercise price of $45. The second put, P2, has an exercise price of $25. Both puts have the same expiration date. Today is the expiration date. Both put option are out of the money. Which of the following stock price is consistent with this situation? Answer Choices: A) 20 B) 25 C) 35 D) 45 E) 50
You buy a call option and buy a put option on bond X. The strike price...
You buy a call option and buy a put option on bond X. The strike price of the call option is $90 and the strike price of the put option is $105. The call option premium is $5 and the put option premium is $2. Both options can be exercised only on their expiration date, which happens to be the same for the call and the put. If the price of bond X is $100 on the expiration date, your...
Suppose you are an options trader. You have recently sold two contracts of puts on a...
Suppose you are an options trader. You have recently sold two contracts of puts on a stock that is currently selling at $27.50. The exercise price on the puts is $25.00. You also buy three contracts of calls on the same stock that has an exercise price of $24.00. The premium on the call is $.85 per option while the premium on the put is $2.00 per option. If, at expiration, the stock price is $28.31, what is your combined...
XYZ Stock currently trades for $45 per share. You find the following options matrix (prices of...
XYZ Stock currently trades for $45 per share. You find the following options matrix (prices of calls and puts) for a June 1st expiration date (which applies for all) 40 strike call option: $9                                40 strike put option: $2 45 strike call option: $4                                45 strike put option: $4 50 strike call option: $2                                50 strike put option: $9 55 strike call option: $1                                55 strike put option: $15 You believe that XYZ will be extremely volatile in the next...
1. Consider options on Alpha Corporation stock. There are call options and put options, both with...
1. Consider options on Alpha Corporation stock. There are call options and put options, both with a strike price of $10 and the expiration date of Jan. 16th. Currently the call premium is $0.50 and the put premium is $1.00. Suppose that there is a 50% chance that the stock price will be $11 on Jan. 16th (Scenario A) and another 50% chance that it will be $8 on Jan. 16th (Scenario B). a. Compute the gross profit and the...
The following prices are available for call and put options on a stock priced at $50....
The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. Strike March (calls) June (calls) March (puts) June (puts) 45 6.84 8.41 1.18 2.09 50 3.82 5.58 3.08 4.13 55 1.89 3.54 6.08 6.93 Use this information to answer the following questions. Assume that each transaction consists of...
Use the Black-Scholes formula to value the following options: a. A Call option written on a...
Use the Black-Scholes formula to value the following options: a. A Call option written on a stock selling for $100 per share with a $110 exercise price. The stock's standard deviation is 15% per quarter. The option matures in three months. The risk free interest is 3% per quarter. b. A put option written on the same stock at the same time, with the same exercise price and expiration date. Now for each of these options find the combination of...
A call and a put are held in a portfolio, both have an exercise price of...
A call and a put are held in a portfolio, both have an exercise price of $140 Premium for the call is $5.00 Spot price of the stock is $145, and the risk free rate is 4%. A. Using continuous compounding, what is the Premium of the Put if both options expire in 2.5 years? B. Using monthly compounding, what is the Premium of the Put if both options expire in 2.5years? C. Does the Put-Call Parity equation work when...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT