Asked May 4, 2019

A one-year call option has a strike price of 70, expires in three months, and has a price of $7.34. If the risk-free rate is 6 percent, and the current stock price is $62, what should the corresponding put be worth?


Expert Answer

Step 1

Recall the call pur parity equation in case of a European option:

C + PV (K) = S + P

Where C = Price of the Call option; P = Price of the put option, K = strike price of the options, PV (K) = Present value of K

Step 2

In this question,

K = $ 70, C = 7.34, S = $ 62, Risk free rate, R = 6%, T = time to maturity = 3 months = 3/12 = 0.25 year

Hence, PV (K) = K x (1 + R)-T = 70 x (1 + 6%)-0.25 = $ 68.99 

Step 3

Substitute the values in the Call Put Parity Equation:

C + PV (K) = S + P


Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in



Financial Derivatives

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add

Q: A retail coffee company is planning to open 90 new coffee outlets that are expected to generate $15....

A: Expected cash flows at the end of year 1, C1 = $ 15.6 mnGrowth rate in the cash flows, g = 3.4% in p...


Q: Ezzell Enterprises' noncallable bonds currently sell for $1,198.50. They have a 5-year maturity, sem...

A: Before we get into the question, let's understand the following equation:Yield to maturity of the bo...


Q: Stock in CDB Industries has a beta of 1.13. The market risk premium is 7.3 percent, and T-bills are ...

A: We can calculate cost of equity capital by two method. First is using the capital asset pricing mode...


Q: Mobray Corp. is experiencing rapid growth. Dividends are expected to grow at 28 percent per year dur...

A: Dividends: The term dividends allude to that portion of proceeds of an organization which is circula...


Q: Compute the nominal annual rate of interest for the simple annuity due. Future value: - Present valu...

A: Calculation of Nominal Annual Rate of Interest:The Nominal Annual Rate of Interest can be calculated...


Q: Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 3.80 percent that s...

A: Calculation of cost of preferred stock:


Q: How I can resolve this problem.  The management of a firm wants to introduce a new product. the prod...

A: a. what is the break-even level of outpur for each scale of operation?In the first scale of operatio...


Q: Bill Clinton reportedly was paid $10 million to write his book My Life. Suppose the book took three ...

A: Since you have specifically asked for excel workings, a snpashot of the excel model is attached for ...


Q: Todd Foley is applying for a $290,000 mortgage. He can get a $2,030 monthly payment for principal an...

A: Calculation of number of months:Excel spreadsheet for calculation of number of months