FedEx is selling for S105 a share. A FedEx call option with one month until expi

Question

FedEx is selling for S105 a share. A FedEx call option with one month until expiration and an exercise price of $120 sells for $2.20 while a put with the same strike and expiration sells for $17.10. What is the market price of a zero-coupon bond with face value $120 and 1 month maturity? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) What is the risk-free interest rate expressed as an effective annual yield? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

As per put call parity we have

P = C - S + Xe^(-rt)

So we have

17.1 = 2.2 - 105 + 120e^(-r*1/12)

0.9992 = e^(-r*1/12)

Taking log on both sides

-0.0008 = -r*1/12, so r is 1.0004% which is annual interest rate

A.Fv is 120 yield is 1.0004%/12 , coupon is 0 , N is 1

So price is 119.9$

B.Risk free interest rate annualized is 1.0004%

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