6. Assume that the price of a European call expiring in six-month with a strike

Question

6. Assume that the price of a European call expiring in six-month with a strike price of $30 is $2. Suppose that the underlying stock price is $29, and a dividend of $0.50 is expected in two months and again in 5 months. The interest rate is the same for all periods and the risk-free rate is 10%. The price of a European put option that expires in six-month and has a strike price of $30 is: Answer $1.51 - 2.51 $2.51 $3.05 6. Assume that the price of a European call expiring in six-month with a strike price of $30 is $2. Suppose that the underlying stock price is $29, and a dividend of $0.50 is expected in two months and again in 5 months. The interest rate is the same for all periods and the risk-free rate is 10%. The price of a European put option that expires in six-month and has a strike price of $30 is: $1.51 - 2.51 $2.51 $3.05 $1.51 - 2.51 $2.51 $3.05

Explanation / Answer

using pit call parity, c - p = s - ke^-(rt) -D => p = c-s + ke^(-rt) +D = 2 -29 + 30 e^(-0.1*0.5) + 0.5 e^(-0.1*2/12) + 0.5 e^(-0.1*5/12) = 2.508 = 2.51 The price of put option is $ 2.51

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