# This flashcard is just one of a free flashcard set. See all flashcards!

176

16.The price of a European call option on a stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. A dividend of $1 is expected in six months. What is the price of a one-year European put option on the stock with a strike price of $50?

A.$8.97

B.$6.97

C.$3.06

D.$1.12

A.$8.97

B.$6.97

C.$3.06

D.$1.12

Answer: C

Put-call parity is c+Ke-rT=p+S0. In this case K=50, S0=51, r=0.06, T=1, and c=6. The present value of the dividend is 1×e−0.06×0.5 = 0.97. It follows that

p=6+50e-0.06×1−(51-0.97) = 3.06

Put-call parity is c+Ke-rT=p+S0. In this case K=50, S0=51, r=0.06, T=1, and c=6. The present value of the dividend is 1×e−0.06×0.5 = 0.97. It follows that

p=6+50e-0.06×1−(51-0.97) = 3.06

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015