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A put option on a stock with a current price of $53 has an exercise price...

A put option on a stock with a current price of $53 has an exercise price of $55. The price of the corresponding call option is $5.25. According to put-call parity, if the effective annual risk-free rate of interest is 5% and there are four months until expiration, what should be the price of the put?

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Answer #1

Using Put Call Parity Equation,

5.25 + 55/(1.05)4/12 = 53 + P

P = $6.36

So,

Price of Put Option = $6.36

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