Can you please explain the work to get the answer, the correct answer is D The p
ID: 2827025 • Letter: C
Question
Can you please explain the work to get the answer, the correct answer is D
The price of a 1-year U.S. dollar-denominated call option on the Swiss franc with a strike price of $1.30 is $0.11715. The price of an otherwise equivalent put option is $0.23417. The annual continuously compounded U.S. interest rate is 8%. What is the 1-year U.S. dollar-Swiss franc forward price?
$1.0830/Fr
$1.0830/Fr
$1.1609/Fr
$1.1830/Fr
$1.1732/Fr
$1.1920/Fr
Can you please explain the work to get the answer, the correct answer is D
The price of a 1-year U.S. dollar-denominated call option on the Swiss franc with a strike price of $1.30 is $0.11715. The price of an otherwise equivalent put option is $0.23417. The annual continuously compounded U.S. interest rate is 8%. What is the 1-year U.S. dollar-Swiss franc forward price?
Selected Answer: a.$1.0830/Fr
Answers: a.$1.0830/Fr
b.$1.1609/Fr
c.$1.1830/Fr
d.$1.1732/Fr
e.$1.1920/Fr
Explanation / Answer
This question can be answered by put call parity formula as shown below,
C-P = S- Xe^(-rt)
C= call price
p = put price
S= stock price
X = strike price
r = continuous compounding rate
0.11715 - 0.23417 = S- 1.30*(e^(-0.08*1))
S= 1.08303
This is underlying stock price.
The question is about the future price of the same stock
F= S*(e^(rt))
= 1.30*(e^(0.08*1)
=1.1732
Answer is matching with the option d.