Consider two \"corresponding\" options, consisting of a call and a put with the
ID: 2791038 • Letter: C
Question
Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the current price of the underlying asset is $81, the options have an exercise price of $81 and they expire in 10 months. Additionally, the risk-free rate is 8% p.a. What is the difference between the premium of the put option, P, and the premium of the call option, C; that is, what is the value of P - C? Write the answer with two decimals; e.g., 3.24. Do NOT use the $ symbol in your answer; just write a numerical value. Of course, include the negative sign if the answer is negative; but do not include the positive sign if the answer is positive.
Explanation / Answer
Put Call Parity Equation: C + Xe-rT = P + S
where C = Call Premium, P = Put premium, X = Strike Price, S = Spot Price, r = risk free rate, T = time in years
P - C = Xe-rT - S
P - C = 81*e-0.08*10/12 - 81
P - C = -5.22