Question

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 considering calls and puts having different exercise prices?

Show formula

Homework Answers

Answer #1

A.

We can compute the Put premium using Put-Call parity equation (with continuous compounding):

where,

P = Put premium

C = Call premium

X = Exercise price

r = risk free rate

t = maturity

B.

We can compute the Put premium using Put-Call parity equation (with monthly compounding):

where,

P = Put premium

C = Call premium

X = Exercise price

r = risk free rate

t = maturity

C.

No, Put-Call parity shows the relationship between price of call option and put option with the same underlying asset, exercise price and maturity.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A call and a put are held in a portfolio, having an exercise price of $150,...
A call and a put are held in a portfolio, having an exercise price of $150, the premium for the call is $5.00, the premium for the put is $2.00, and the risk free rate is 6%. A. Using continuous compounding what is the Spot price of the stock if both options expire in 3 years B. Using monthly compounding, what is the Spot price of the stock if both options expire in 3 years? Show formula
A call and a put are held in a diversed portfolio & they both have an...
A call and a put are held in a diversed portfolio & they both have an exercise price of $140 The Spot price of the stock is $100 Risk free rate is 6%. Use Put-Call Parity for A& B A. The premium for the Call is $15.00, what is the Premium for the Put, given both options expire in 1.5 years? B. The Premium for the Put is $3.00 and both options expire in 3.5 years, then how much is...
Exercise price $150 Spot Price $110 Risk rate is 5% Using Put-Call Parity & continuous compounding...
Exercise price $150 Spot Price $110 Risk rate is 5% Using Put-Call Parity & continuous compounding A. If the premium for the Call is $12.00,what is the Premium for the Put, given both options expire in 1.5 years? B If the Premium for the Put is $3.00 and both options expire in 3.5 years, then how much is the Premium for the Call option? Using excel!
You purchase 100 put options on a stock with exercise price of $52 at a premium...
You purchase 100 put options on a stock with exercise price of $52 at a premium of $4.30 per put. You also purchase 100 call options on the same stock with exercise price of $54 and call premium of $5.10 per call. If at expiration of the options (the options expire on the same date), the stock's price is $52.79, calculate your profit. According to put-call parity, the present value of the exercise price is equal to the: A. Stock...
Consider a put and a call, both on the same underlying stock that has present price...
Consider a put and a call, both on the same underlying stock that has present price of $34. Both options have the same identical strike price of $32 and time-to-expiration of 200 days. Assume that there are no dividends expected for the coming year on the stock, the options are all European, and the interest rate is 10%. If the put premium is $7.00 and the call premium is $12.00, which portfolio would yield arbitrage profits? Hint: Check your answer...
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 a call and a put on a non dividend paying stock; both for T =...
Consider a call and a put on a non dividend paying stock; both for T = 1yr. The stock price is $45/share and K = $45/share for both options. The Call premium is equal to the put premium c = p = $7/share. The annual risk-free rate is 10%. 7.1 Use the put-call parity and show that there exists an arbitrage opportunity. 7.2 Show the complete table of cash flows and P/L at the options expiration of a strategy that...
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...
A call and put expire in 0.41 year and have an exercise price of $100. The...
A call and put expire in 0.41 year and have an exercise price of $100. The underlying stock is worth $90 and has a standard deviation of 0.25. The annual risk-free rate is 11 percent. The annual dividend yield (q) on the stock is 2%. The put option price from the three-period binomial model is: 8.67 9.467 9.207 7.593
A call and put expire in 0.41 year and have an exercise price of $100. The...
A call and put expire in 0.41 year and have an exercise price of $100. The underlying stock is worth $90 and has a standard deviation of 0.25. The annual risk-free rate is 11 percent. The annual dividend yield (q) on the stock is 2%. The put option price from the three-period binomial model is: 8.67 9.467 9.207 7.593