The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is...

The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is 5

percent (continuously compounded), the volatility is 30 percent, and the time to expiration is

one year (365 days).

a. Using the BSM model, compute the call and put prices for a stock option.

b. In the previous question (3a) you should get the same price for the call and the put, or very

similar (the differences are due to the rounding of the decimal points). Knowing this, explain

why this happens. (HINT: Look at the put-call parity formula).

Expert Solution

ANSWER IN THE IMAGE. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

price = 11.92

B. As per put call parity

P+ S = present value of X + C

P= value of put option.
S= current price of share
X= strike price
C= value of call option.
Present value of X.
r = risk free rate.

The price of put and call are same because.

S = present value of X.

Present value of X = 105.1271/e^0.05
= 105.1271/1.051271
= 100.

And S= 100 (Given).

jeff jeffy answered 1 year ago

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