The price of a European call option on Lululemon stock with an exercise price of $34.50 and one year to expiry is trading at $2.52.The current price of the stock is $34,and the risk-free rate is 4%.With no arbitrage,what must be the price of a European put on Lululemon with an exercise price of $34.50?
A)$3.37
B)$0.71
C)$1.69
D)$2.52
E)$0.50

Question

Quizplus · Accepted Answer

Using the put-call parity for European options: C - P = S - PV(K), where C is the call price, P is the put price, S is the stock price, and PV(K) is the present value of the strike price. Solving for P gives P = C - S + PV(K). Substituting the given values: P = $2.52 - $34 + $34.50/(1+0.04) = $1.69.

The Price of a European Call Option on Lululemon Stock