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What must be the price of a 6-month put option

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The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price of the stock is $125 per share, and the price of a 6-month call option at an exercise price of $125 is $6.93.

a. If the risk-free interest rate is 5.00% per year, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of $125? (The stock pays no dividends.)

b. How far would it have to move in either direction for you to make a profit on your initial investment?

Reference no: EM132643575

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