The price of a European call option on a stock with astrike price of $49.38 is $6. The stock price is $52.43,the continuously compounded risk-free rate (allmaturities) is 6% and the time to maturity is 1 year. Adividend of $1.32 is expected in 8 months. What is theprice of a 1-year European put option on the stock witha strike price of $49.38?

Put-call parity is c+Ke^-rT=p+S0. In this case K=49.38 S0=52.43, r=0.06, T=1, and c=6. The…

Answered: of $1.32 is expected in 8 months. What…

of $1.32 is expected in 8 months. What is the price of a 1-year European put option on the stock with a strike price of $49.38?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

The price of a European call option on a stock with a
strike price of $49.38 is $6. The stock price is $52.43,
the continuously compounded risk-free rate (all
maturities) is 6% and the time to maturity is 1 year. A
dividend of $1.32 is expected in 8 months. What is the
price of a 1-year European put option on the stock with
a strike price of $49.38?

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