Question

a call option on jupiter motors stock with an exercise price of $75 and one-year expiration is selling at $3. a put option on jupiter stock with an exercise price of $75 and one-year expiration is selling at $2.50. if the risk-free rate is 8% and jupiter pays no dividends, what should the stock price be? assume there is no dividends. (do not round intermediate calculations. round your answer to 2 decimal places.)

Answer 1

The stock price of Jupiter Motors should be $75.50.

Step-by-step explanation:

To determine the stock price, we can use the concept of put-call parity. According to the put-call parity formula, the stock price should be equal to the sum of the exercise price of the call option and the difference between the premium of the call option and the premium of the put option. In this case, the exercise price of the call option is $75, the premium of the call option is $3, and the premium of the put option is $2.50.

Using the put-call parity formula, the stock price should be:

Stock Price = Exercise Price of Call Option + Premium of Call Option - Premium of Put Option

Stock Price = $75 + $3 - $2.50

Stock Price = $75 + $0.50

Stock Price = $75.50

Therefore, the stock price should be $75.50.