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In June 201X, a six-month call on XYZ stock, with an exercise price of $22.50, sold for $12.30. The stock price was $27.27. The risk-free interest rate was 3.9 percent. How much would you be willing to
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8 votes
In June 201X, a six-month call on XYZ stock, with an exercise price of $22.50, sold for $12.30. The stock price was $27.27. The risk-free interest rate was 3.9 percent. How much would you be willing to pay for a put on XYZ stock with the same maturity and exercise price

User Tunji
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1 Answer

10 votes
10 votes

Answer:

Price of Put = $ 7.1037

Step-by-step explanation:

Put-Call Parity:

Price of Call + Exercise Price / (1 + Risk-free rate)^T = Price of Put + Stock Price

Price of Call = $12.30

Exercise Price = $22.50

Stock Price = $27.27

Risk-free rate = 3.9%

Time period = 6 months or 0.5 year

Now insert the values:

Price of Call + Exercise Price / (1 + Risk-free rate)^T = Price of Put + Stock price

12.30 + 22.50 / (1 + 3.9%)^0.5 = Price of Put + 27.27

12.30 + 22.50 / 1.019313 - 27.27 = Price of Put

Price of Put = 12.30 + 22.0737 - 27.27

Price of Put = $ 7.1037

User Coppro
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