Question

The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price of the stock is $160 per share, and the price of a 3-month call option at an exercise price of $160 is $6.73.

If the risk-free interest rate is 10% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of $160? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

The price of a 3-month put option is $2.96

Step-by-step explanation:

According to the data we have the following:

Current stock price S0= $160

Exercise price X is $160

price of a 3-month call option C is $6.73

risk-free interest rate is 10%

Therefore, to calculate the the price of a 3-month put option P, we would have to use the following formula:

P=C-S0+PV(X)

P=$6.73-$160+$160

(1+10%)∧3/12

P=$6.73-$160+$160

1.02411

P=$2.96

The price of a 3-month put option is $2.96