Suppose VS's stock price is currently $20. A six-month call option on VS's stock with an exercise price of $15 has a value of $7.14. What is the price of an equivalent put option? The six-month risk-free interest rate is 5 percent per six-month period.
A)$1.43
B)$9.43
C)$8.00
D)$12.00

Question

Quizplus · Accepted Answer

The price of the equivalent 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 option, $S_0$ is the current stock price, $c$ is the price of the call option, $X$ is the exercise price, $r$ is the risk-free interest rate, and $t$ is the time to expiration. Plugging in the given values: $p + 20 = 7.14 + 15e^{-0.05}$. Solving for $p$ gives approximately $1.43.

Suppose VS's Stock Price Is Currently $20