A put option with 60 days to maturity,exercise price of $12.00,underlying spot price of 14.00 and risk-free rate of 7% p.a.is valued at $0.10.What is the value of a call option with the same characteristics? (Assume the put option premium is correctly priced and there are no dividends. )

A) $ \$ 2.10 $
B) $ \$ 2.16 $
C) $ \$ 2.24 $
D) $ \$ 2.40 $

Question

A put option with 60 days to maturity,exercise price of $12.00,underlying spot price of 14.00 and risk-free rate of 7% p.a.is valued at $0.10.What is the value of a call option with the same characteristics? (Assume the put option premium is correctly priced and there are no dividends. )

A) $ \$ 2.10 $
B) $ \$ 2.16 $
C) $ \$ 2.24 $
D) $ \$ 2.40 $

Quizplus · Accepted Answer

Using equation 16.5,put-call parity can be written as c - g = P - PV(X).In this example,we can write this as c - 0.10 = 14.00 - 12/(1+0.07 F1F1F1S1F1F1F10 60/365).That is c = 0.10 + 14.00 - 11.86 = $2.24.Hence,the call option value according to put-call parity is $2.24.

A Put Option with 60 Days to Maturity,exercise Price of $12.00,underlying