Question

Jafee Corp. common stock is priced at $36.50 per share. The company just paid its $0.50 quarterly dividend. The continuously compounded risk free annual interest rate is 6.0%. A $35.00 strike European call, maturing in 6 months, sells for $3.20. What is the price of a 6-month, $35.00 strike put option?

Answer 1

(d) $1.55≤VP(0)<$1.76

Step-by-step explanation:

VP(0) =VC(0) +Ke-rT-FP0

T(S) =VC(0) +Ke-rT-S(0) +De-rt1+De-rt2

Using the formulae

= 3.20 + 35e-0.06/2-36.50 + 0.50e-0.06/4+ 0.50e-0.06/2

=1.64.

The priceVP(0) of a 6-month, $35.00 strike put option is 1.64