3. (a) Carefully explain the put-call parity relationship, and show how it can be used to...

 

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3. (a) Carefully explain the put-call parity relationship, and show how it can be used to value a put option on a stock. (b) A call option with three months to maturity is currently selling for $4.60 with an exercise price of $60. A put option with the same exercise price sells for $7.20. The risk-free interest rate is 6 per cent, and the stock is expected to pay a dividend of $2.10 in three months. Determine the current stock price. [5 marks] 3. (a) Carefully explain the put-call parity relationship, and show how it can be used to value a put option on a stock. (b) A call option with three months to maturity is currently selling for $4.60 with an exercise price of $60. A put option with the same exercise price sells for $7.20. The risk-free interest rate is 6 per cent, and the stock is expected to pay a dividend of $2.10 in three months. Determine the current stock price. [5 marks]

Answer rating: 100% (QA)

SOLUTION a Putcall parity is a relationship between the prices of a European call option a European ... View the full answer