A call option on Juniper Corp.stock with an exercise price of $75 and an expiration date one year from now is worth $3.00 today.A put option on Juniper Corp.stock with an exercise price of $75 and an expiration date one year from now is worth $2.50 today.The risk-free rate of return is 8% and Juniper Corp.pays no dividends.The stock should be worth __________ today.
A) $69.73
B) $71.69
C) $73.12
D) $77.25

Question

Quizplus · Accepted Answer

The correct answer is A because the stock price is equal to the exercise price plus the present value of the call option minus the present value of the put option. The present value of the call option is $3.00 / (1 + 0.08)^1 = $2.78. The present value of the put option is $2.50 / (1 + 0.08)^1 = $2.32. Therefore, the stock price is $75 + $2.78 - $2.32 = $69.73.

A Call Option on Juniper Corp