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24 December, 16:54

The common stock of the C. A. L. L. Corporation has been trading in a narrow range around $95 per share for months, and you believe it is going to stay in that range for the next 3 months. The price of a 3-month put option with an exercise price of $95 is $6.00.

If the risk-free interest rate is 9% per year, what must be the price of a 3-month call option on C. A. L. L. stock at an exercise price of $95 if it is at the money?

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  1. 24 December, 16:56
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    The price of 3 months call option on stock is 8.03.

    Explanation:

    Acording to the details we have the following:

    P = Price of 3-months put option is $6

    So = Current price is $95

    X = Exrecise price is $95

    r = Risk free interest rate is 9%

    T = Time is 3 months=1/4

    C=Price of call option?

    Hence, to calculate what must be the price of a 3-month call option on C. A. L. L. stock at an exercise price of $95 if it is at the money, we have to use the formula from put-call parity.

    C=P+So - X

    (1+r) ∧T

    C=$6+$95 - ($95)

    (1+0.09) ∧1/4

    C=$6+$95-$92.97

    C=8.03

    The price of 3 months call option on stock is 8.03
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