Question

The stock price of Atlantis Corp. is $43 today. The risk-free rate of return is 10%, and Atlantis Corp. pays no dividends. A call option on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months from now is worth $5 today. A put option on Atlantis Corp. stock with an exercise price of $40 and an expiration date 6 months from now should be worth __________
a. $.05
b. $.14
c. $2
d. $3.95

Answer 1

Answer:

correct option is  a. $.05

Explanation:

given data

stock price S = $43

rate of return r= 10%

exercise price K = $40

time = 6 month

worth = $5

solution

we will apply here formula for worth that is  

P = C - S + K × $e^{-rt}$

here C is given worth 5 and S is stock price and K is exercise price and t is time and r is rate

so put here all value in equation 1 we get

P = C - S + K × $e^{-rt}$

P = 5 - 43 + 40 × $e^{-0.1*6/12}$

P = 5 - 43 + 38.05

P = 0.05

so here correct option is  a. $.05