A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of 14.00 p.a.is valued at $2.24.If the put option with these characteristics is trading at $0.06,at what risk-free rate will put-call parity hold? (Assume the call option premium is correctly priced and there are no dividends. )
A) $ 5 \% $
B) $ 6 \% $
C) $ 7 \% $
D) $ 8 \% $

Question

Quizplus · Accepted Answer

Using equation 16.5,put-call parity can be written as c - g = P - PV(X).In this example,we can write this as 2.24 - 0.06 = 14.00 - 12/(1 + r F1F1F1S1F1F1F10 60/365).Solving for r gives 7%.

A Call Option with 60 Days to Maturity,exercise Price of $12.00,underlying