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A European Call and a European Put on a Stock

Question 3

Multiple Choice
A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the call changes to $4.50. Which of the following is correct?
A) The put price increases to $6.00
B) The put price decreases to $2.00
C) The put price increases to $5.50
D) It is possible that there is no effect on the price

A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the call changes to $4.50. Which of the following is correct?


A) The put price increases to $6.00
B) The put price decreases to $2.00
C) The put price increases to $5.50
D) It is possible that there is no effect on the price

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