Question

A put option and a call option with an exercise price of $65 expire in three months and sell for $.92 and $5.50, respectively. if the stock is currently priced at $68.38, what is the annual continuously compounded rate of Interest? (Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 3216.) Rate of interest

Answer 1

Using Put Call Parity,

C + (X)e^-rt = Stock Price + P

5.50 + (65)e^-r(3/12) = 68.38 + .92

e^-r(3/12) = 0.9815

Using log,

-r(3/12) = log(0.9815)/log(e)

r = 7.47%

So,

Rate of Interest = 7.47%