Reference no: EM133275492

Put-Call Parity (PCP), as the relationship is often presented, is based, among other things, on the assumption that the underlying asset does not pay a dividend during the term. However, the very purpose of e.g. shares to give dividends to its owners and it may therefore be necessary to adjust the formula for the case when dividends are made during the term. The PCP can be adjusted to account for dividends by adding the present value of the dividend occurring during the term to the appropriate side of the equals sign in the formula. Assume that a share is traded on the spot market today at a price of SEK 733.09 and that both call and put options are also traded with the share as an underlying asset. The options have a term of 1 year and an exercise price of SEK 707.66. The call option is traded at a price of SEK 16.56, the put option is traded at a price of SEK 17.07 and the risk-free interest rate is 2.50%. Furthermore, the share is expected to pay a dividend in 1 year, just before the options expire. Adjust the PCP appropriately and calculate how much dividend the stock is expected to give per share. Assume that no arbitrage profit can be made.