A call option with 2 months to expiration currently sells for $3.80. A put option with the same expiration sells for $1.30. The options are European style. The risk-free rate is 5 percent and the strike price of both options is $62.50. What is the current stock price?
A) $60.70
B) $72.07
C) $67.16
D) $64.49
E) $70.23

Question

Quizplus · Accepted Answer

To solve the question, we use the put-call parity formula:

C - P = S - PV(K)

where C is the call price, P is the put price, S is the stock price, K is the strike price, and PV is the present value factor.

Plugging in the given values, we get:

3.80 - 1.30 = S - (62.50 / (1+0.05)^(2/12))

2.50 = S - 61.87

S = 64.37

The closest answer choice is D: $64.49.

A Call Option with 2 Months to Expiration Currently Sells