Question
In: Finance
Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The...
Rebecca is interested in purchasing a European call on a hot new stock, Up, Inc. The call has a strike price of $ 97.00 and expires in 95 days. The current price of Up stock is $ 115.78, and the stock has a standard deviation of 40 % per year. The risk-free interest rate is 6.34 % per year. Up stock pays no dividends. Use a 365-day year.
a. Using the Black-Scholes formula, compute the price of the call.
b. Use put-call parity to compute the price of the put with the same strike and expiration date.
(Note: Make sure to round all intermediate calculations to at least five decimal places.)
Solutions
Expert Solution
a.Price of call = $22.33
b. Put Call parity Equation
Call Premium + Strike Price * e^(-rt) = Put Premium + Spot Price
22.33 + 97 * e^(-0.0634*65/365) = Put Premium + 115.78
22.33 + 97 * 0.98877 = Put Premium + 115.78
$118.24069 = Put Premium + 115.78
Put Premium = $2.46069
jeff jeffy answered 1 year agoRelated Solutions
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