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?

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