Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price $100.If the risk-free rate is 5%, the stock price is $103, and the put sells for $7.50, what should be the price of the call?
A)$17.50
B)$15.26
C)$10.36
D)$12.26

Question

Quizplus · Accepted Answer

To find the price of the call option, we can use the put-call parity formula, which is given by: $C + Ke^{-rt} = P + S$, where $C$ is the price of the call option, $K$ is the strike price, $r$ is the risk-free interest rate, $t$ is the time to maturity, $P$ is the price of the put option, and $S$ is the current stock price. Plugging in the given values: $C + 100e^{-0.05} = 7.50 + 103$. Solving for $C$ gives us approximately $15.26.

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