Question

A put option on a stock with a current price of $46 has an exercise price of $48. The price of the corresponding call option is $4.20. According to put-call parity, if the effective annual risk-free rate of interest is 4% and there are three months until expiration, what should be the price of the put?

Answer 1

$5.73

Step-by-step explanation:

The computation of the price of the put is shown below:

= Price of the corresponding call option - current price of put option + exercise price ÷ ( 1 + effective annual risk-free rate of interest) ^ number of months ÷ total months in a year

= $4.20 - $46 + $48 ÷ ( 1 + 0.04) ^ 3 months ÷ 12 months

= $4.20 - $46 + $48 ÷ 1.0098534065

= $4.20 - $46 + 47.5316513156

= $5.73