A one-year call option has a strike price of 50, expires in 6 months, and has a price of $5.04. If the risk-free rate is 5 percent, and the current stock price is $50, what should the corresponding put be worth?
A) $3.04
B) $4.64
C) $6.08
D) $3.83
E) $0

Question

Quizplus · Accepted Answer

To find the value of the corresponding put, we can use put-call parity: 
Put + Stock = Call + PV(Strikes price)
PV(Strikes price) = 50 / (1 + 0.05)^0.5 ≈ $47.61 
Substituting the given values into the formula: 
Put + 50 = 5.04 + 47.61 
Put = $3.83

A One-Year Call Option Has a Strike Price of 50