A call option has a premium of $0.60,a strike price of $40,and 3 months to expiration.The current stock price is $39.60.The stock will pay a $0.80 dividend two months from now.The risk-free rate is 3 percent.What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.
A) $0.25
B) $0.51
C) $0.78
D) $1.23
E) $1.50

Question

Quizplus · Accepted Answer

Put option price = $0.60 - $39.60 + 0.80 / (1.03)^{2 / 12} + $40 / (1 + 0.03)^{1 / 4} = $1.50

A Call Option Has a Premium of $0