A call option with 6 months to expiration currently sells for $2.05. A put option with the same expiration sells for $.60. The options are European style. The risk-free rate is 3.0% and the strike price of both options is $50. What is the current stock price?
A)$47.89
B)$49.19
C)$50.72
D)$51.29
E)$52.08

Question

Quizplus · Accepted Answer

We can use the put-call parity equation to solve for the stock price:
Stock Price + PV(Exercise Price) = Call Price + Put Price
Stock Price + $49.25 = $2.05/(1+0.03/2)^1 + $0.60/(1+0.03/2)^1
Stock Price + $49.25 = $1.9991 + $0.5859
Stock Price = $50.72

A Call Option with 6 Months to Expiration Currently Sells