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zepelin [54]
3 years ago
6

The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $95 per share for months, and you believe

it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $95 is $6.00.
If the risk-free interest rate is 9% per year, what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money?
Business
1 answer:
miv72 [106K]3 years ago
5 0

Answer:

The price of 3 months call option on stock is 8.03.

Explanation:

Acording to the details we have the following:

P = Price of 3-months put option is $6

So = Current price is $95

X = Exrecise price is $95

r = Risk free interest rate is 9%

T = Time is 3 months=1/4

C=Price of call option?

Hence, to calculate what must be the price of a 3-month call option on C.A.L.L. stock at an exercise price of $95 if it is at the money, we have to use the formula from put-call parity.

C=P+So-<u>     X    </u>

                (1+r)∧T

C=$6+$95-  ( <u>$95      )</u>

                     (1+0.09)∧1/4

C=$6+$95-$92.97

C=8.03

The price of 3 months call option on stock is 8.03

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