ABX corporation is currently trading for $45 per share.The stock will pay a one-time dividend of $2.25 in exactly 3 months.A one-year European call option on ABX with a strike price of $50 is currently trading for $2.40.If the risk-free interest rate is 9% per year,then the price of a one-year European put option on ABX with a strike price of $50 will be closest to:
A)$3.73
B)$5.47
C)$0.88
D)$5.52
E)$1.07

Question

Quizplus · Accepted Answer

To find the price of the put option, we can use put-call parity:

Put price + Stock price = Call price + PV of dividend

We know the call price is $2.40 and the stock price is $45. The PV of the dividend is:

$2.25 / (1 + 0.09 * (3/12)) = $2.18

Substituting into the formula, we get:

Put price + $45 = $2.40 + $2.18
Put price = $5.47

Therefore, the closest answer choice is B.

ABX Corporation Is Currently Trading for $45 Per Share