The current stock price is 50, and the continually compounded annual interest ra

Question

The current stock price is 50, and the continually compounded annual interest rate is 4%. A 45-strike European call option on the stock with 6 months to expiration has price 6.57. The stock pays no dividends. What price must the stock be in 6 months so that buying the call and selling the call have the same profit? A 51.57 B 51.70 C 55.57 D 55.70 E 56.57
Please, can you show work. The current stock price is 50, and the continually compounded annual interest rate is 4%. A 45-strike European call option on the stock with 6 months to expiration has price 6.57. The stock pays no dividends. What price must the stock be in 6 months so that buying the call and selling the call have the same profit? A 51.57 B 51.70 C 55.57 D 55.70 E 56.57
Please, can you show work. A 51.57 B 51.70 C 55.57 D 55.70 E 56.57
Please, can you show work.

Explanation / Answer

If we calculate interest accumulated on stock in 6 months

=50*4%*6/12

=$1

Net stock price after 6 months= $51

Now Net price with call option= 45+6.57

= $51.57

stock must be at $51.57 in 6 months so that buying the call and selling the call have the same profit.

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