A call option has a premium of $0.60, a strike price of $40, and 3 months to expiration. The current stock price is $39.60. The stock will pay a $0.80 dividend two months from now. The risk-free rate is 3 percent. What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.
Put-Call Parity for a Dividend-Paying Stock:
Stock Price - PV(Dividend) = Call Premium - Put Premium + PV (Common Strike Price)
Common Strike Price = $ 40, Risk-Free Rate = 3 %, Tenure = 3 months, Dividend worth $0.8 is paid 2-months later, Call Premium = $ 0.6 and Put Premium = $ p and Stock Price = $ 39.6
Therefore, 39.6 - [0.8 / e^{0.03 x (2/12)}] = 0.6 - p + 40 / e^{0.03 x (3/12)}
p $ 1.497 ~ $ 1.5
A call option has a premium of $0.60, a strike price of $40, and 3 months...
14. A call option has a premium of $0.60, a strike price of $40, and 3 months to expiration. The current stock price is $39.60. The stock will pay a $0.80 dividend two months from now. The risk-free rate is 3 percent. What is the premium on a 3-month put with a strike price of $40? Assume the options are European style. Page 4
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The current stock price is 100. The call option premium with a strike price 100 is 8. The effective risk-free interest rate is 2%. The stock pays no dividend. What is the price of a put option with strike price 100? (Both options mature in 3 months.)
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