Question

a call option on Jupiter Motors stock with an exercise price of $75 and one-year expiration is selling at $4. A put option on Jupiter stock with an exercise price of $75 and one-year expiration is selling at $2.50. If the annual risk-free rate is 2% and Jupiter pays no dividends, what should the stock price be

Answer 1

Answer:

$75.01

Explanation:

Given:

• Call price (C): $4
• Put price (P): $2.5
• risk-free rate (r): 2% = 0.02
• Time: 1 year
• Exercise price (K): $75

Let Share price: $S_{0}$

As per put-call party, we have the following equation:

• C + K$e^{-rt}$ = P+$S_{0}$

<=> $S_{0}$  = C + K$e^{-rt}$ - P

<=> $S_{0}$  = 4 +  75*$e^{-0.02*1}$ - 2.5

<=> $S_{0}$  = 1.5 + 73.51 = $75.01

So the the stock price is $75.01