A call option is currently selling for $4.30. It has a strike price of $105 and

Question

A call option is currently selling for $4.30. It has a strike price of $105 and four months to maturity. The current stock price is $107, and the risk-free rate is 2.8 percent. The stock will pay a dividend of $1.95 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

A call option is currently selling for $4.30. It has a strike price of $105 and four months to maturity. The current stock price is $107, and the risk-free rate is 2.8 percent. The stock will pay a dividend of $1.95 in two months. What is the price of a put option with the same exercise price? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

According to Put call parity

P+S = C + ke-rt

P = price of Put option,

S0 = Price of Stock =107

K = Strike price of the option = 105

C = Price of call option = 4.30

R = risk free rate of interest = 2.8%

t = time in years= 4 month = 1/3 years

S = S0- P.V dividend

S = 107 - 1.95*exp(-0.028*2/12) = 105.0591

Using put call parity

P + 105.0591 = 4.3 + 105*exp(-0.028*1/3)

Price of Put option(P) = 3.27

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