# 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?

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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?

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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

H...

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