A dividend paying stock is currently selling for $47. The price of a $50 strike call with a 6 month expiration is selling for $2.20. If the interest rate is 4%, what is the price of the put option assuming a dividend is paid in 6 months and is $1.20?
A) $5.41
B) $4.23
C) $3.36
D) $2.26
E) None of the options.

Question

Quizplus · Accepted Answer

The correct answer is A because the price of the put option is $5.41. This can be calculated using the Black-Scholes model, which takes into account the stock price, strike price, time to expiration, interest rate, and dividend yield.

A Dividend Paying Stock Is Currently Selling for $47