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AleksAgata [21]
3 years ago
5

You are considering purchasing a put option on a stock with a current price of $33. The exercise price is $35, and the price of

the corresponding call option is $2.25. According to the put-call parity, if the continuously compounded interest rate is 4% and there are 90 days until expiration, the value of the put should be ____________. (Assume 365 days a year) A. $2.25 B. $3.91 C. $4.05 D. $5.52
Business
1 answer:
solniwko [45]3 years ago
3 0

Answer: $3.91

Explanation:

The following information can be gotten from the question:

S = Current stock price = $33

C = Call Price = $2.25

K = Exercise Price = $35

e = 2.71

Rf = Risk free rate = 4% = 0.04

T = Time = = 90 days = 90/365

Put Price will now be calculated as:

= C - S + K × e^(-rt)

= 2.25 - 33 + 35 × 2.71^(-0.04 × 90/365)

= $3.91

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