Question

16. A put option that expires in eight months with an exercise price of $55 sells for $7.34. The stock is currently priced at $52, and the risk-free rate is 3.1 percent per year, compounded continuously. What is the price of a call option with the same exercise price and expiration date

Answer 1

Answer: $5.47

Explanation:

Based on the values given in the question, the price of a call option with the same exercise price and expiration date will be given by using the equation regarding put call parity which will be:

C + (X)e^-rt = Stock Price + P

Therefore,

C + (55)e^-0.031(8/12) = 52 + 7.34

C = $5.47

Therefore, the price of the call option would be $5.47