Company NMN is selling for $100 dollars per share, and does not pay any dividends. A call option on this stock with one month until expiration and an exercise price of $110 sells for $9 while a put with the same strike price and expiration sells for $18.97. What is the annual yield on risk-free zero-coupon bonds in this economy (to the nearest %)? [hint: you need to use the put-call parity].
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Company NMN is selling for $100 dollars per share, and does not pay any dividends. A call option on this stock with one month until expiration and an exercise price of $110 sells for $9 while a put with the same strike price and expiration sells for $18.97. What is the annual yield on risk-free zero-coupon bonds in this economy (to the nearest %)? [hint: you need to use the put-call parity].
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