A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of $14.00 and risk-free rate of 7% p.a.is valued at $2.20.What is the value of a put option with the same characteristics? (Assume the call option premium is correctly priced and there are no dividends. )

A) $ \$ 0.02 $
B) $ \$ 0.06 $
C) $ \$ 0.07 $
D) $ \$ 0.08 $

Question

A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of $14.00 and risk-free rate of 7% p.a.is valued at $2.20.What is the value of a put option with the same characteristics? (Assume the call option premium is correctly priced and there are no dividends. )

A) $ \$ 0.02 $
B) $ \$ 0.06 $
C) $ \$ 0.07 $
D) $ \$ 0.08 $

Quizplus · Accepted Answer

Using equation 16.5,a put-call parity can be written as c - g = P - PV(X).In this example,we can write this as 2.20 - g = 14.00 - 12/(1+0.07 F1F1F1S1F1F1F10 60/365);that is: g = 2.20 - 14.00 + 11.86 = 0.06.Hence,the put option value due to put-call parity is $0.06.

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