You buy a share of stock, write a one-year call option with a strike price X = $

Question

You buy a share of stock, write a one-year call option with a strike price X = $28, and buy a one-year put option with a strike price X = $28. Your net initial cost to establish the entire portfolio is $26.70. What must be the risk-free interest rate from now until the options maturity date? The stock pays no dividends. (Do not round intermediate calculations. Enter your answer as a percentage rounded to two decimal places.)

You buy a share of stock, write a one-year call option with a strike price X = $28, and buy a one-year put option with a strike price X = $28. Your net initial cost to establish the entire portfolio is $26.70. What must be the risk-free interest rate from now until the options maturity date? The stock pays no dividends. (Do not round intermediate calculations. Enter your answer as a percentage rounded to two decimal places.)

Explanation / Answer

Risk free rate of interest = (Strike price- Initial cost )/ initial cost

Risk free rate of interest = (28-26.70)/ 26.70

                                        = 1.30/26.70

                                        = 4.8689%

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