Grocery Express stock is selling for $22 a share. A three-month, $20 call on this stock is priced at $2.85. Risk-free assets are currently returning .2 percent per month. What is the price of a three-month put on Grocery Express stock with a strike price of $20?
A) $.37
B) $.73
C) $.87
D) $1.10
E) $1.18

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 ($2.85), X is the strike price ($20), r is the monthly risk-free rate (0.002), t is the time in months (3), and S is the stock price ($22). Calculating gives P = $2.85 + $20/(1.002)^3 - $22 = $0.73.

Grocery Express Stock Is Selling for $22 a Share