Suppose VS's stock price is currently $20. Six-month call option on the stock with an exercise price of $15 has a value of $7.14. Calculate the price of an equivalent put option if the six-month risk-free interest rate is 5% (periodic rate).
A) $1.43
B) $9.43
C) $8.00
D) $12.00

Question

Quizplus · Accepted Answer

Using the put-call parity formula: P = C + X/(1+r)^t - S, where P is the put price, C is the call price ($7.14), X is the exercise price ($15), r is the risk-free rate (0.05), t is the time in years (0.5), and S is the stock price ($20). P = 7.14 + 15/(1+0.05)^0.5 - 20 = 1.43.

Suppose VS's Stock Price Is Currently $20