Question

Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%. What is the price of a one-year put with strike price of $58

Answer 1

Answer:

$11.97

Explanation:

Calculation for the price of a one-year put

Using this formula

Price=Call option-Stock+Strike price(1+Risk-free interest rate)

Let plug in the formula

Price = $10 - $53 + $58/(1+.055)

Price = $10 - $53 + $58/(1.055)

Price= $11.97

Therefore the price of a one-year put with strike price of $58 will be $11.97

Answer 2

The put price for one year for a stock would be $14.21. The calculations are done on the basis of call option prices and risk free rate of return given in the query.

Put price generally refers to the asking price to sell the stock at a future price either up or down with respect to current situations of the stock market.

• The formula for calculating the Put price for one year will be calculated is as given below.

$\rm {Put\; price}= \dfrac{Call\; option- current\; stock\ price + current\; strike\; price}{(1+ risk\; free\; interest\; rate)}$

• Putting the values available in the formula above we get

$\rm {Put\ price} = \dfrac{10-53+58}{1+0,055}$

• Value obtained will be

$\rm Put\ price = 14.21$

Hence, the put price for a stock whose strike price is $58 will be $14.21 for a period of 1 year.

To Know more about option pricing, click on the link below.

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