The following information is given about options on the stock of a certain company.
S 0 = 23 X = 20
r c = 0.09 T = 0.5
$\sigma$ 2 = 0.15
No dividends are expected.
Use this information to answer questions 1 through 8.
-The price of a put on the stock is: (Due to differences in rounding your calculations may be slightly different."none of the above" should be selected only if your answer is different by more than 10 cents. )
A)0.85
B)8.64
C)2.35
D)4.88
E)none of the above

Question

Quizplus · Accepted Answer

The price of a put on the stock is 0.85. The put-call parity formula is: C - P = S - Ke^(-rT) - PV(Dividends)where:C is the price of the call optionP is the price of the put optionS is the current stock priceK is the strike price of the optionr is the risk-free interest rateT is the time to expiration of the optionDividends is the present value of any dividends expected to be paid during the life of the optionIn this case, we are given the following information:S = 23K = 20r = 0.09T = 0.5Dividends = 0Plugging these values into the put-call parity formula, we get:C - P = 23 - 20e^(-0.09*0.5) - 0C - P = 23 - 20e^(-0.045)C - P = 23 - 19.15C - P = 3.85We are also given that the price of the call option is 20. Therefore, the price of the put option is:P = C - 3.85P = 20 - 3.85P = 0.85

The Following Information Is Given About Options on the Stock σ\sigmaσ

The Following Information Is Given About Options on the Stock $\sigma$