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10 January, 19:50

The common stock of the C. A. L. L. Corporation has been trading in a narrow range around $125 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $125 is $10.50. a. If the risk-free interest rate is 5% per year, what must be the price of a 6-month call option on C. A. L. L. stock at an exercise price of $125 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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  1. 10 January, 20:10
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    The price of a 6-month call option on C. A. L. L. stock is $13.52

    Explanation:

    According to the given data we have the following:

    P = Price of 6-months put option=$10.50.

    So = Current price=$125

    X = Exrecise price=$125

    r = Risk free interest rate = 5%

    T = Time 6 months = 1/2

    In order to calculate the price of a 6-month call option on C. A. L. L. stock at an exercise price of $125 if it is at the money, we would have to use the formula of put-call parity as follows:

    C=P+So - (X)

    (1+r) ∧T

    C=$10.50+$125 - ($125)

    (1+0.05) ∧1/2

    C=$135.5-121.98

    C=$13.52

    The price of a 6-month call option on C. A. L. L. stock is $13.52
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