Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%. What is the price of a one-year put with strike price of $58?

A) $10.00
B) $12.12
C) $16.00
D) $11.98
E) $14.13

Question

Malinda Panduka · Accepted Answer

Final Answer : D, Explanation :   The price of the put option can be calculated using the put-call parity formula:   p + S 0 = c + X e − r t p + S_0 = c + Xe^{-rt} p + S 0 ​ = c + X e − r t  , where   p p p   is the price of the put,   S 0 S_0 S 0 ​   is the current stock price,   c c c   is the price of the call,   X X X   is the strike price,   r r r   is the risk-free interest rate, and   t t t   is the time to expiration. Plugging in the given values:   p + 53 = 10 + 58 e − 0.055 p + 53 = 10 + 58e^{-0.055} p + 53 = 10 + 58 e − 0.055  . Solving for   p p p   gives approximately $11.98.

Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%. What is the price of a one-year put with strike price of $58?

A) $10.00
B) $12.12
C) $16.00
D) $11.98
E) $14.13

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Learning Objectives

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Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%. What is the price of a one-year put with strike price of $58?A) $10.00B) $12.12C) $16.00D) $11.98E) $14.13

Definitions

Learning Objectives

Learning Objectives

Related questions

Top Flight Stock currently sells for $53. A one-year call option with strike price of $58 sells for $10, and the risk-free interest rate is 5.5%. What is the price of a one-year put with strike price of $58?

A) $10.00
B) $12.12
C) $16.00
D) $11.98
E) $14.13