FREE Trial

A put option that expires in six months with an exercise price of $65 sells for $4.89.

Question:

A put option that expires in six months with an exercise price of $65 sells for $4.89. The stock is currently priced at $61, and the risk-free rate is 3.6 percent per year, compounded continuously. What is the price of a call option with the same exercise price?


Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 47% (19 reviews)

Using putcall par...View the full answer


answer-question-section
Answered By
tutor-profile-image
Nyron Beeput
I am an active educator and professional tutor with substantial experience in Biology and General Science. The past two years I have been tutoring online intensively with high school and college students. I have been teaching for four years and this experience has helped me to hone skills such as patience, dedication and flexibility. I work at the pace of my students and ensure that they understand. My method of using real life examples that my students can relate to has helped them grasp concepts more readily. I also help students learn how to apply their knowledge and they appreciate that very much.
4.00+ 1+ Reviews 10+ Question Solved
Related Book For  book-img-for-question
Corporate Finance

Corporate Finance

ISBN: 978-0077861759

10th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

See More Books
Question Posted:
See More Questions

Related Video

A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

Students also viewed these Corporate Finance questions

Communications In Computer And Information Science 1031 Computational Intelligence Communications And Business Analytics Second International Conference Cicba 2018 Kalyani India July 27 28 2018 Revised Selected Papers Part Ii 1st Edition - ISBN: 9811385807 - Free Book