A put option with 60 days to maturity,exercise price of $12.00,and the risk-free rate is 7% p.a.If a call option is trading at $2.24 and a put option with $0.06,what is the share price that will result in put-call parity holding?

A) $ \$ 10 $
B) $ \$ 12 $
C) $ \$ 14 $
D) $ \$ 16 $

Question

A put option with 60 days to maturity,exercise price of $12.00,and the risk-free rate is 7% p.a.If a call option is trading at $2.24 and a put option with $0.06,what is the share price that will result in put-call parity holding?

A) $ \$ 10 $
B) $ \$ 12 $
C) $ \$ 14 $
D) $ \$ 16 $

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 as 2.24 - 0.06 = 14.00 - P/(1+0.07 F1F1F1S1F1F1F10 60/365).Solving for P gives a spot price of $14.00.

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