EXERCISE #4: Optional: Put-Call Parity: C – P = S – PV(K), PV(K) = K /...

EXERCISE #4: Optional: Put-Call Parity: C – P = S – PV(K), PV(K) = K / (1+r)
A-B. The stock is at 50. One-year interest rates are at 3%.
A. A one-year call struck at 52 trades at $4. What must be the price of a one-year 52 put? $ ...........................................................................

B. A one-year call struck at 50 trades at $5. What must be the price of a one-year 50 put? $ ...........................................................................

C. The stock is at 51. The strike is 55. A one-year call struck at 51 trades at $4. A one-year put struck at 55 trades at 1.38. What must be the interest rate?

...................................................... %

Solutions

Expert Solution

1.
=4+52/1.03-50=4.48543689320388

2.
=5+50/1.03-50=3.54368932038835

3.
=55/(51+1.38-4)-1=13.6833402232327%

jeff jeffy answered 1 year ago

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