Question

In: Finance

Netflix is selling for $105 a share. A Netflix call option with one month until expiration...

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?

Expert Solution

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:

jeff jeffy answered 2 years ago

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