By NEAS - 11/11/2022 12:14:36 PM
CorpFin mod 20 put call parity relation practice exam questions
(The attached PDF file has better formatting.)
Question 1.2: Option prices and stock price
European put and call options trade with strike prices of 35 and expire in 6 months. The price of the put option is 6.35 and the price of the call option is 7.34. The risk-free interest rate is 4.0% per annum.
What is the underlying stock price?
Answer 1.2: The put call parity relation is: call + present value of exercise price = put + stock price.
This gives: stock price = present value of exercise price + call – put
= 35 / (1 + 4.0%)0.5 + 7.34 – 6.35 = 35.31
Question 1.3: Call option price
● The price of a European put option that expires in 6 months and has a strike price of 35 is 3.90.
● The underlying stock price is 30.90, and the risk-free interest rate is 4.0% per annum.
What is the price of a European call option that expires in 6 months with a strike price of 35?
Answer 1.3: The put call parity relation is: call + present value of exercise price = put + stock price.
This gives: call = stock price + put – present value of exercise price
= 30.90 + 3.90 – 35 / (1 + 4.0%)0.5 = 0.48
Question 1.4: Put option price
● The price of a European call option that expires in 6 months and that has a strike price of 35 is 9.20.
● The underlying stock price is 38.30, and the risk-free interest rate is 4.0% per annum.
What is the price of a European put option that expires in 6 months with a strike price of 35?
Answer 1.4: The put call parity relation is: call + present value of exercise price = put + stock price.
This gives: put = present value of exercise price + call – stock price
= 35 / (1 + 4.0%)0.5 + 9.20 – 38.30 = 5.22
|
|