Question

1. If the call premium is $4, the stock price is $34 and the strike price is $35 then the intrinsic value of the call option is:

2. If the put premium is $5, the stock price is $27 and the strike price is $30 then the time value of the put option is:

3. Which of the following are equivalent positions according to the put-call parity?

Short Put and Long stock = Long call and Long bond

Long Put and Long bond = Long stock and Long call

Long Put and Long call = Long stock and Long bond

Long Put and Long stock = Long call and Long bond

Long Put and Short call = Long stock and Long bond

4. The current stock price is $500 and the risk-free rate is 10%. A put that matures in 6 months with a strike price of 500 is trading for $62.00. If the put-call parity holds then what is the implied price of a call option with the same maturity and strike price as the put?

5. If the fair price of a call is $7.84 but due to a market inefficiency the call is trading for $10, which of the following positions will allow you to make arbitrage profits:

Short put, long call, long bond, short stock

Long put, long call, long bond, short stock

Long put, short call, short bond, long stock

Short put, long call, short bond, long stock

Long put, long call, short bond, short stock

Answer 1

1.
=MAX(34-35,0)=0

2.
=5-MAX(30-27,0)=2

3.
Long Put and Long stock = Long call and Long bond

4.
=S+P-X/(1+r)^t
=500+62-500/(1+10%)^(6/12)
=85.26870538

5.
Long put, short call, short bond, long stock