A stock currently trades for $25. January call options with a strike price of $30 sell for $6. The appropriate risk-free bond has a price of $30. Calculate the price of the January put option.
A) $11
B) $24
C) $19
D) $30
E) $25

Question

Quizplus · Accepted Answer

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

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

Where PV of Strike price is the present value of the strike price calculated using the risk-free bond.

Plugging in the given values, we get:

$25 + Put price = $6 + ($30/1+r), where r is the risk-free rate

Solving for Put price, we get:

Put price = $11.07

Rounding off to the nearest dollar, we get the answer as A) $11.

A Stock Currently Trades for $25