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Find the price of the european put with the same strike

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Reference no: EM132503485

Question (a) Suppose a stock price is $40 and the effective annual interest rate is 8%. Draw the payoff and profit diagrams for the following options on the stock and determine which option is the most valuable.

(i) 35-strike call with a premium of $9.12

(ii) 40-strike call with a premium of $6.22

(iii) 45-strike call with a premium of $4.08

Question (b) The initial price of a non-dividend-paying stock is $50 per share. A 6-month, at-the-money call option is trading for $1.89. Let the interest rate be r = 6.5%. Find the price of the European put with the same strike, expiration and the underlying asset.

Question (C) A stock currently sells for $32.00. A 6-month European call option with strike $35.00 has a premium of $2.26. Assuming a 6% continuous dividend yield and the continuously compounded, risk-free interest rate of 4%, what is the price of the otherwise identical put option as dictated by put-call parity?

Reference no: EM132503485

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