FedEx is selling for $105 a share. A FedEx call option with one month until expi
ID: 2749701 • Letter: F
Question
FedEx is selling for $105 a share. A FedEx call option with one month until expiration and an exercise price of $115 sells for $2.50 while a put with the same strike and expiration sells for $12.20.
a.
What is the market price of a zero-coupon bond with face value $115 and 1 month maturity? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Market price $
b.
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.)
Risk-free interest rate $ %
Explanation / Answer
The market price and risk free rate are as follows:
C (call) =2.5, P (put)=$12.2,K (Exercise price)=115, t(time to maturity)=1/12, S(Stock Price)=105
r (risk free rate)=?
Put call parity: C+K*exp(-r*t)=P+S
2.5+115*exp (-r*t)=12.2+105
Exp(-r*t) =114.7/115 = 0.9973
-r*t = ln (0.9973) =- 0.002609
-r*(1/12)=- 0.002609
Risk free rate(r ) = 0.002609*12 = 0.0313% per annum
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