The one-year call on TLM stock with a strike price of $65 is priced at $2.20 while the one-year put with a strike price of $65 is priced at $11.18. The annual risk-free rate is 3.8 percent, compounded continuously. What is the current price of TLM stock?

Question

Quizplus · Accepted Answer

Using the put-call parity formula: C + PV(K) = P + S, where C is the call price, P is the put price, PV(K) is the present value of the strike price, and S is the stock price. Solving for S gives $53.60.

The One-Year Call on TLM Stock with a Strike Price