ING Stock currently sells for $38. A one-year call option with strike price of $45 sells for $9, and the risk-free interest rate is 4%. What is the price of a one-year put with strike price of $45?
A) $9.00
B) $12.89
C) $16.00
D) $18.72
E) $14.27

Question

Quizplus · Accepted Answer

The put-call parity formula is:C + PV(X) = P + Swhere:C is the price of the call optionP is the price of the put optionX is the strike priceS is the current stock pricer is the risk-free interest ratet is the time to expirationIn this case, we have:C = $9X = $45S = $38r = 4%t = 1 yearSubstituting these values into the formula, we get:$9 + PV($45) = P + $38PV($45) = $45 * e^(-0.04 * 1) = $43.23P = $9 + $43.23 - $38 = $14.27Therefore, the price of the one-year put with strike price of $45 is $14.27.

ING Stock Currently Sells for $38