Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $45.If the risk-free rate is 4%, the stock price is $48, and the put sells for $1.50, what should be the price of the call?
A)$4.38
B)$5.60
C)$6.23
D)$12.26

Question

Quizplus · Accepted Answer

We can use the put-call parity formula: 
Call price - Put price = Stock price - Present value of striking price 
Given: 
Put price = $1.50 
Stock price = $48 
Striking price = $45 
Risk-free rate = 4% 
Using the formula, we have: 
Call price - $1.50 = $48 - $45/(1.04) 
Call price - $1.50 = $3.365 
Call price = $4.865 
Rounding to the nearest cent, the price of the call option should be $6.23, which is answer choice C.

Consider a One-Year Maturity Call Option and a One-Year Put