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

Quizplus · Accepted Answer

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

Top Flight Stock Currently Sells for $53