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Consider a stock with a price with S = 100 and pays no dividends. The annual...

Consider a stock with a price with S = 100 and pays no dividends. The annual risk-free is 10%. A European put option on the stock with a strike price 90 and an expiration date three months from now has a price of 10. What is the price of a European call option on this stock with the same strike price and expiration date?

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Answer #1

The Put call parity formula for a European Put anc Call with same maturity date and strike price is

C-P=FP0,T(S)-FP0,T(K).

Where C is Call price, P is Put price, S is stock price, r is interest rate, K is strike price and T is time in years. Since the solution is foruma heavy, I have solve it on a paper, which is below.

Pur cau CP= F-C) 1 We ves are So100 T 3/2-25 tx-25 So p l00-90xe Sina P-10 and theu au us dividends C 1ot722 C-N7-72

Hence, the price of call option is 17.722

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