The $850 strike put premium is $25.45 and the $850 strike call is selling for $30.51.Calculate the breakeven index price for a strategy employing a short call and long put that expires in 6 months.Interest rates are 0.5% per month.

Question

Quizplus · Accepted Answer

To calculate the breakeven index price, we need to add the premium received from short call and premium paid for long put to the strike price of the put.

Breakeven index price = put strike + put premium - call premium
Breakeven index price = $850 + $25.45 - $30.51 = $845.94

To adjust for interest rates, we need to multiply the breakeven index price by the continuous compounding factor for 6 months.

Interest factor = e^(interest rate x time)
Interest factor = e^(0.005 x 6/12)
Interest factor = 1.0025

Breakeven index price adjusted for interest = $845.94 x 1.0025 = $847.77

Therefore, the closest option is B) $824.79.

The $850 Strike Put Premium Is $25