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The stock price of Harper Corp. is $33 today. The continuously compounded interest rate is 6%. A put option on Harper Corp. stock with an exercise price of $30 and an expiration date 73 days from now is worth $.95 today. A call option on Harper Corp. stock with an exercise price of $30 and the same expiration date should be worth __________ today. (Assume 365 days a year) A. $2.25 B. $3.14 C. $3.99 D. $4.31

Respuesta :

Answer:

D. $4.31

Explanation:

The computation of expiration date should be worth in today is shown below:-As per put-call parity

P + S = present value of X + C

Where,

P indicates the value of the put option

S indicates the current price of a share

X indicates the strike price

C indicates the value of the call option.

Present value of X = X ÷ e^r

r  represents the risk-free rate

Now, we will put the values into the above formula

Present value of X = 30 ÷  e^0.012

r = 6% × (73 ÷ 365)

= 1.2%

0.95 + 33 = (30 ÷ e^0.012) + C

After solving the above equation we will get

C = $4.31

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