Question

The price of a European call that expires in six months and has a strike price of $30 is $2. The underlying stock price is $29, and a dividend of $0.50 is expected in two months and again in five months. The term structure is flat, with all risk-free interest rates being 10%. What is the price of a European put option that expires in six months and has a strike price of $30

Answer 1

p = $2.51

Step-by-step explanation:

Given:

• D = $0.50
• Stock price: $29 (s)
• Interest rates: 10%.
• Strike price of $30 : $2 (c)

To find the the price of a European put option, we use here pit call parity that is :

c - p = s - k
`e^(-rt)` - D

<=> p = c - s + k
`e^(-rt)` + D

<=> p = 2 -29 + 30
`e^{-0.1*(6)/(12) }` + 0.5

<=> p = $2.51

Hope it will find you well