You buy a share of stock, write a one-year call option with a strike price X = $

Question

You buy a share of stock, write a one-year call option with a strike price X = $22, and buy a one-year put option with a strike price X = $22. Your net initial cost to establish the entire portfolio is $20.60. What must be the risk-free interest rate from now until the options maturity date? The stock pays no dividends. (Do not round intermediate calculations. Enter your answer as a percentage rounded to two decimal places.)

You buy a share of stock, write a one-year call option with a strike price X = $22, and buy a one-year put option with a strike price X = $22. Your net initial cost to establish the entire portfolio is $20.60. What must be the risk-free interest rate from now until the options maturity date? The stock pays no dividends. (Do not round intermediate calculations. Enter your answer as a percentage rounded to two decimal places.)

Explanation / Answer

F0= S0( 1+ rf-d),                 F0= Intial future price, S0= Intial stock price

                                            rf= risk free interest rate, d= dividend yield

22= 20.60(1+rf- 0)

1+rf= 1.0679

rf= 1.0679-1= 0.0679

rf= 6.79%

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