A stock currently trades for $63. Call options with a strike price of $62 sell for $4.00 and expire in six months. If the risk-free rate is 4 percent, what should the price of a put option with an exercise price of $62 be worth?
A) $0.62
B) $0.98
C) $1.80
D) $3.00
E) $5.80

Question

Quizplus · Accepted Answer

To calculate the value of the put option, we can use the put-call parity equation:
Put price - Call price = Stock price - PV of exercise price
Assuming the stock doesn't pay dividends, the PV of exercise price is $62 e^(-0.04 x 0.5) = $59.71.
Substituting the given values, we get:
Put price - $4.00 = $63 - $59.71
Put price = $1.80

A Stock Currently Trades for $63