Calculate the price of a European call option if the price of the equivalent put option is $2.00 and the share price,exercise price and risk-free rate are $5.00,$4.50 and 10% p.a. ,respectively,given the option has three months to expiry.

Question

Quizplus · Accepted Answer

Using the put-call parity formula for European options: C = P + S - PV(X), where C is the call option price, P is the put option price, S is the stock price, and PV(X) is the present value of the exercise price. PV(X) = $4.50 / (1 + 0.10)^(3/12) = $4.39. Thus, C = $2.00 + $5.00 - $4.39 = $2.61.

Calculate the Price of a European Call Option If the Price