Please help me solve and walk me through each step so that I can learn how to do
ID: 2742248 • Letter: P
Question
Please help me solve and walk me through each step so that I can learn how to do on my own. Thank you!
Problem 17-4 Put-Call Parity
A put option that expires in six months with an exercise price of $60 sells for $4.95. The stock is currently priced at $56, and the risk-free rate is 3.6 percent per year, compounded continuously. What is the price of a call option with the same exercise price? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
Call price $
Explanation / Answer
P =Strike Price * ert+Call Option -Stock Price
= $ 60 * e(0.036)*6/12+$ 4.95 - $ 56
= $ 60*0.9822 -$ 51.05
= $ 58.93 -$ 51.05 = $ 7.88