Problem 20-30 Netflix is selling for $105 a share. A Netflix call option with on

Question

Problem 20-30 Netflix is selling for $105 a share. A Netflix call option with one month until expiration and an exercise price of $119 sells for $2.10 while a put with the same strike and expiration sells for $15.80. a. What is the market price of a zero-coupon bond with face value $119 and 1-month maturity? (Round your answer to 2 decimal places.) Market price b. What is the risk-free interest rate expressed as an effective annual yield? (Round your answer to 2 decimal place.) Risk-free interest rate

Explanation / Answer

This can be solved through put call parity:

C + PV(X) = P + S

2.1 + 119*(e^(-r*t)) = 15.8 + 105

e^(-r*1/12) = 118.7/119 = 0.99747

r*1/12 = 0.0026

= 0.0312

r = 3.12%

Market price of bond = 119*e^(-r*t) = 118.7

b) r = 3.12%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.