A call option is currently selling for $5.30. It has a strike price of $60 and s

Question

A call option is currently selling for $5.30. It has a strike price of $60 and six months to maturity. The current stock price is $62, and the risk-free rate is 3.3 percent. The stock will pay a dividend of $2.15 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

A call option is currently selling for $5.30. It has a strike price of $60 and six months to maturity. The current stock price is $62, and the risk-free rate is 3.3 percent. The stock will pay a dividend of $2.15 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Put call parity

P+S = C + ke-rt

P= price of Put option,

S0= Price of Stock =62

K = Strike price of the option = 60

C= Price of call option = 5.3

R= risk free rate of interest = 3.3%

T= time in years= 6 month = 0.5 years

S= S0- P.V dividend

S=62 -2.15* exp(-0.033*2/12)= 59.86179

Using put call parity

P+59.86179 = 5.3 +60*exp(-0.033*0.5)

Price of Put option(P) =5.3 +60*exp(-0.033*0.5)- 59.86179 = 4.456333

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