I need help with the following problem: FedEx is selling for $105 a share. A Fed
ID: 2794347 • Letter: I
Question
I need help with the following problem:
FedEx is selling for $105 a share. A FedEx call option with one month until expiration and an exercise price of $115 sells for $2.20 while a put with the same strike and expiration sells for $11.56.
What is the market price of a zero-coupon bond with face value $115 and 1 month maturity? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
What is the risk-free interest rate expressed as an effective annual yield? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
$ %
Thank you.
FedEx is selling for $105 a share. A FedEx call option with one month until expiration and an exercise price of $115 sells for $2.20 while a put with the same strike and expiration sells for $11.56.
Explanation / Answer
Spot price S = 105
Exerceise price X = 115
price of put p = 11.56
price of call c = 2.2
a)
using put call parity
c + X e^-RT = p +s
2.2 + X e^-RT = 11.56 + 105
price of bond = Xe^-RT
= 114.36
b)
X e^-RT = 114.36
115 * e^-R*1/12 = 114.36
=>
risk free rate R = 6.70%