Question
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?
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Homework Answers
Answer #1
A. Continuous compounding:
We can compute the spot price of the stock using Put-Call Parity equation:
where,
S = spot price of the stock
C = Call premium
X = exercise price
P = Put premium
r = risk free rate
t = maturity
B. Monthly compounding:
We can compute the spot price of the stock using Put-Call Parity equation:
where,
S = spot price of the stock
C = Call premium
X = exercise price
P = Put premium
r = risk free rate
t = maturity
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