In: Finance
Netflix is selling for $105 a share. A Netflix call option with one month until expiration and an exercise price of $115 sells for $2.20 while a put with the same strike and expiration sells for $11.56.
a. What is the market price of a zero-coupon bond with face value $115 and 1-month maturity?
b. What is the risk-free interest rate expressed as an effective annual yield?
Stock Price (S) = $105
Exercise Price (X) = 115
Call Price (C) = $2.20
Put price (P) = $11.56
Maturity (t) = 1 month = 1/12
Risk free rate = r
a.
Face value of 1-month Zero bond = $115
Face value of bond and Strike price is same. Thus, Present value of Strike price is also equals to market price of Zero bond.
Market price of zero bond = BV_0
Accounding to Put Call parity:
and,
Thus,
b.
Risk-free interest rate as effective annual yield: