A 4-month, $30 call option on Teller stock has an option premium of $.35. The 4-month, $30 put option has an option premium of $.60. The risk-free rate is 1.1%. The options are European-style. What is the price of Teller stock?
A)$29.20
B)$29.53
C)$29.64
D)$29.97
E)$30.08

Question

Quizplus · Accepted Answer

We can use the put-call parity formula to find the price of the underlying stock:
Call premium - Put premium = Stock Price - (Strike Price / (1 + Risk-free Rate)^Time)
$0.35 - $0.60 = Stock Price - ($30 / (1.011)^0.33)
Solving for Stock Price, we get:
Stock Price = $29.64

A 4-Month, $30 Call Option on Teller Stock Has an Option