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kolbaska11 [484]
3 years ago
12

A one-month European call option on a non-dividend-paying stock is currently selling for $1. The stock price is $47, the strike

price is $50, and the risk-free rate is 6% per annum (continuously compounded). What is the time value of a one-month European put on the same stock with the same strike price?
Business
1 answer:
REY [17]3 years ago
4 0

Answer:

The price of the put-option on the same stock with the same strike price is $3.75.

Explanation:

To find the price of the put option on an underlying asset given the price on the call option's price for the same underlying asset with the same strike price is given, we apply put-call parity model.

Put call parity model: p = K x e^(-rT) + c - St .

in which: p: put option's price;

               K: underlying asset's strike price;

               r: risk-free rate;

              T: time to maturity denominated in year;

               c= call option's price;

              St = spot price of underlying asset .

So, p = 50 x e^(-0.06 x 1/12) + 1 - 47 = $3.75 .

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