Question

The price of a non-dividend-paying stock is $20, and the price of a 3-month European call option on the stock with a strike price of $22 is $1.50. Assume the risk-free rate is 5% per annum. What is the price of a 3-month European put option with a strike price of $22 on the same stock

Answer 1

-$0.23

Step-by-step explanation:

Using put-call parity equation:

Price of European call option = Current stock price + Price of European put option - Strike price*e^-(risk free rate * time to expiration)

Price of European call option = $20 + $1.50 - $22*e^-(0.05*3/12)

Price of European call option = $20 + $1.50 - $22*0.9875778

Price of European call option = $20 + $1.50 - $21.73

Price of European call option = -$0.23