Answered: Let us say that a put and a call have…

Let us say that a put and a call have the same maturity date and strike price. If both options have the same price, what will be the value of the stock?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 6MC

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Let us say that a put and a call have the same maturity date and strike price. If both options have the same price, what will be the value of the stock?

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Similar questions

What impact does each of the followingparameters have on the value of a call option?(1) Current stock price
In the Black-Scholes option pricing model, the value of a call is inversely related to: a. the risk-free interest stock b. the volatility of the stock c. its time to expiration date d. its stock price e. its strike price
Consider two put options on the same stock with the same time to maturity. The strike price of Put A is less than the strike price of Put B. Which of the following is true? O It is possible for Put A to be in the money and Put B to be out of the money. O It is possible for Put A to be out of the money and Put B to be in the money. One of the options must be in the money. All of the other answers are correct.
Explain in detail with an example how the change of the variables (like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration) of Black-Scholes-Merton Formula affect the price of the option.
If the stock price falls and the call price rises, then what has happened to the call option’s implied volatility?
One way to model an option with dividends in the binomial framework is for the stock price minus the present value of the dividends to grow by the up and down factors. True or False?
We showed in the text that the value of a call option increases with the volatility of the stock. Is this also true of put option values? Use the put-call parity theorem as well as a numerical example to prove your answer.
What are the steps in valuing a call option when the binomial tree describing an underlying stock price has more than one sequential up/down jumps?
Analyze the value of a call option if the stock price is zero? What if the stock price is extremely high (relative to the strike price)?
Why do call options with exercise prices greater than the price of the underlying stock sell for positive prices?
Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different. Use the following table to identify whether each statement describes put options or call options. Statement Put Option Call Option 1. An option is more valuable the longer the maturity. 2. A longer maturity in-the-money option on a risky stock is more valuable than the same shorter maturity option. 3. When the exercise price increases, option prices increase. 4. As the risk-free rate increases, the value of the option increases.
According to the Black-Scholes formula, what will be the hedge ratio (delta) of a call option as the stock price becomes infinitely large? Explain briefly.