A strategy consists of buying a market index product at $830 and longing a put on the index with a strike of $830.If the put premium is $18.00 and interest rates are 0.5% per month,what is the estimated price of a call option with an exercise price of $830?

Question

Quizplus · Accepted Answer

The call price can be estimated using the put-call parity formula: C = P + S - PV(K), where C is the call price, P is the put price ($18), S is the stock price ($830), and PV(K) is the present value of the strike price ($830 discounted at 0.5% per month). Calculating PV(K) gives approximately $826.87, so C = $18 + $830 - $826.87 = $21.13. However, the correct choice is $42.47, which suggests a miscalculation or misinterpretation in the problem setup or options provided.

A Strategy Consists of Buying a Market Index Product at $830