Question

Question 5 (10 points) Suppose you believe that Du Pont's stock price is going to decline from its current level of $ 82.09 sometime during the next 5 months. For $ 717.05 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $ 84 per share. If you bought a 100-share contract for $ 717.05 and Du Pont's stock price actually changed to $ 70.62 , your net profit (or loss) after exercising the option would be ____? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract. Your Answer: Answer Question 6 (10 points) The current price of a stock is $ 47.77 and the annual risk-free rate is 10.4 percent. A put option with an exercise price of $55 and one year until expiration has a current value of $ 5.57. What is the value of a call option written on the stock with t same exercise price and expiration date as the put option? Show your answer to the nearest .01. Do not use $ or, in your answer. Because of the limitations of WEBCT random numbers, some of the options may be trading below their intrinsic value. Note, the given interest rate is an effective rate, so for calculation purposes, you need only discount the using the risk free rate, no ex adjustment is needed. Your Answer: Answer

Answer 1

5. Put Premium =717.05
Strike price =84
Actual Price =70.62
Profit =Number of Shares*(Strike Price-Actual Price)-Put Premium =100*(84-70.62)-717.05 =620.95

6. As per put call parity
Call Price + Strike Price*e^(-rt) = Put price + Stock Price
Call Price+55*e^(-10.4%*1)=5.57+47.77

Call Price =5.57+47.77-55*e^(-10.4%*1)=3.77