e 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 ing to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price e stock is $80 per share, and the price of a 3-month call option at an exercise price of $80 is $5.00. If the risk-free interest rate is 6% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of 30? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) ut-call parity
e 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 ing to break far out of that range in the next 3 months. You do not know whether it will go up or down, however. The current price e stock is $80 per share, and the price of a 3-month call option at an exercise price of $80 is $5.00. If the risk-free interest rate is 6% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of 30? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) ut-call parity
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 3 months. You do not know whether it will go up or down, however. The current price of
the stock is $80 per share, and the price of a 3-month call option at an exercise price of $80 is $5.00.
a. If the risk-free interest rate is 6% per year, what must be the price of a 3-month put option on P.U.T.T. stock at an exercise price of
$80? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Put-call parity
b. What would be a simple options strategy to exploit your conviction about the stock price's future movements. How far would it have
to move in either direction for you to make a profit on your initial investment? (Round your intermediate calculations and final answer
to 2 decimal places.)
Strategy
Price change for profit
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