A call option is currently selling for $3.00. It has a strike price of $70 and s
ID: 2716430 • Letter: A
Question
A call option is currently selling for $3.00. It has a strike price of $70 and seven months to maturity. The current stock price is $72, and the risk-free rate is 3.1 percent. The stock will pay a dividend of $2.35 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
A call option is currently selling for $3.00. It has a strike price of $70 and seven months to maturity. The current stock price is $72, and the risk-free rate is 3.1 percent. The stock will pay a dividend of $2.35 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
As per Put Call Parity
Price of a put option = Call price + PV of Strike Price - (current stock price - PV of Dividend)
Price of a put option = 3 + 70/e^(3.1%*7/12) - (72 - 2.35/e^(3.1%*2/12)))
Price of a put option = 3 + 70/2.718281828^(3.1%*7/12) - (72 - 2.35/2.718281828^(3.1%*2/12))
Price of a put option = $ 2.08
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