A $1.75 strike call option has a $0.14 premium.The $1.75 strike put option premium is $0.12.What is the net cost for Farmer Jayne to create a synthetic short forward contract? (Assume 4.0% interest.)
A) $0.0208
B) -$0.0208
C) $0.000
D) -$0.0424

Question

Quizplus · Accepted Answer

The net cost is the difference between the call premium and the put premium, which is $0.14 - $0.12 = $0.02. Since the interest rate is 4%, the present value of this cost is $0.02 / (1 + 0.04) = $0.0208.

A $175 Strike Call Option Has a $0