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pshichka [43]
3 years ago
6

A put option on a stock with a current price of $47 has an exercise price of $49. The price of the corresponding call option is

$4.35. According to put-call parity, if the effective annual risk-free rate of interest is 5% and there are four months until expiration, what should be the value of the put? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Business
2 answers:
Sedbober [7]3 years ago
4 0

Answer:

The answer is 5.559539 or 5.56.

Explanation:

From the given question let us recall the following statements

The current price of A put option on a stock  = $47

With an exercise price of $49

Annual risk-free rate of annual  interest is = 5%

The  corresponding  price call option is = $4.3

The next step is to find the put value

Now,

The Call price + Strike/(1+risk free interest) The Time to maturity =

Spot + Put price

Thus

The,Put price = Call price - Spot + Strike/(1+risk free interest)Time to maturity

When we Substitute the values, we get,

Put price = (4.35 - 47) + 49/1.05 4/12

Therefore, The  Put Price = 5.559539 or 5.56

notsponge [240]3 years ago
4 0

Answer:

The Put Value of the stock is 5.55

Explanation:

To compute the Put Price;

Therefore,

Put price = \frac{Exercise Price}{(1+ risk free interest)^{Maturity Time}} + Call Price - Current Price

By substituting the value in the formula  

Put Price = 4.35 + [49 / (1 + 0.05)^{4/12}] - 47

Put Price = 4.35 + [49 / (1.05)^{4/12}] -47

Put Price = 4.35 + [49 / 1.02] -47

Put Price = 4.35 + 48.21 – 47

Put Price = 5.55

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Answer:

C. $358,455

Explanation:

As per given data

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Investment                                         $320,000    $240,000

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Estimated annual net cash inflows   $75,000      $40,000

Residual value                                    $30,000     $10,000

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Required rate of return                        14%                10%

Net Present value of the net cash inflows can be calculated by using the formula of present value of annuity because the cash inflows of each year are constant cash flows.

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Placing values in the formula

Present value of cash inflows = $75,000 x [ ( 1 - ( 1 + 14% )^-8 ) / 14% ]

Present value of cash inflows = $347,915

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Formula for Discounting

Present value = P (1 + r)^-n

Where

P = Value to be discounted = $30,000

r = required rate of return = 14%

n - numbers of periods = 8 years

Placing values in the formula

Present value of residual value = $30,000 x ( 1 + 14% )^-8 = $10,517

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