Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 20, Problem 22PS
Put–call parity The common stock of Triangular File Company is selling at $90. A 26-week call option written on Triangular File’s stock is selling for $8. The call’s exercise price is $100. The risk-free interest rate is 10% per year.
- a. Suppose that puts on Triangular stock are not traded, but you want to buy one. How would you do it?
- b. Suppose that puts are traded. What should a 26-week put with an exercise price of $100 sell for?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
A4)
Suppose that the price of a stock today is at $25. For a strike price of K = $24
a 3-month European call option on that stock is quoted with a price of $2, and a 3-month
European put option on the same stock is quoted at $1.5 Assume that the risk-free rate is 10%
3.
per annum.
(a) Does the put-call parity hold?
The common stock of Triangular File Company is selling at $91. A 13-week call option written on Triangular File's stock is selling for $9.
The call's exercise price is $101. The risk-free interest rate is 8% per year.
a. Suppose that puts on Triangular stock are not traded, but you want to buy one. Which combination will produce the same results?
Buy call, invest PV(EX), sell stock short
Sell call, invest PV(EX), sell stock short
Buy call, lend PV(EX), buy stock
Sell call, lend PV(EX), buy stock
b. Suppose that puts are traded. What should a 13-week put with an exercise price of $101 sell for? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Put option price
Chapter 20 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 20 - Vocabulary Complete the following passage: A _____...Ch. 20 - Option payoffs Note Figure 20.13 below. Match each...Ch. 20 - Option combinations Suppose that you hold a share...Ch. 20 - Put-call parity What is put-call parity and why...Ch. 20 - Prob. 5PSCh. 20 - Option combinations Dr. Livingstone 1. Presume...Ch. 20 - Option combinations Suppose you buy a one-year...Ch. 20 - Prob. 8PSCh. 20 - Prob. 9PSCh. 20 - Option values How does the price of a call option...
Ch. 20 - Option values Respond to the following statements....Ch. 20 - Option combinations Discuss briefly the risks and...Ch. 20 - Option payoffs The buyer of the call and the...Ch. 20 - Option bounds Pintails stock price is currently...Ch. 20 - Putcall parity It is possible to buy three-month...Ch. 20 - Prob. 16PSCh. 20 - Option values FX Bank has succeeded in hiring ace...Ch. 20 - Option combinations Suppose that Mr. Colleoni...Ch. 20 - Put-call parity A European call and put option...Ch. 20 - Putcall parity a. If you cant sell a share short,...Ch. 20 - Putcall parity The common stock of Triangular File...Ch. 20 - Prob. 23PSCh. 20 - Option combinations Option traders often refer to...Ch. 20 - Option values Is it more valuable to own an option...Ch. 20 - Option values Table 20.4 lists some prices of...Ch. 20 - Option values Youve just completed a month-long...Ch. 20 - Prob. 29PSCh. 20 - Prob. 30PS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- solve a,b,c and d please. Round to the nearest dollararrow_forward4. Consider a call option on the S&R index with 6 months to expiration and a strike price of $1000. Suppose that the effective rate compounded semiannually is 2% and the premium for this call is $93.81. (a) Draw the payoff and profit graphs for the call option holder. (b) If the S&R index price at expiration is $1100, will the owner exercise this option? What is the profit? (c) If the S&R index price at expiration is $900, will the owner exercise this option? What is the profit?arrow_forwardModigliani-Miller Theorem I. 7. Options A. How does the price of a call option respond to the following changes, other things equal? Does the price go up or down? Explain briefly the intuition for your answer. (i). Exercise price rises. (ii). Volatility of stock price rises. 3arrow_forward
- Bhaarrow_forwardsolve a,b,c and d please. round to nearest dollararrow_forwardSuppose you purchase eight call contracts on Macron Technology stock. The strike price is $60 and the premium is $3. If, at expiration, the stock is selling for $64 per share, what are your call options worth? What is your net profit?arrow_forward
- Please correct answer and don't use hand raitingarrow_forwardA one-year call option on a stock with a strike price of $30 costs $3; a one-year put option on the sto of $30 costs $4. Suppose that a trader buys two call options and one put option. The breakeven sto the trader makes a profit is A) $28 B $20 C) $26 D $25arrow_forwardInvestor A wants to buy a European call option on Company N's stock. The call has a strike price of $100 and matures in 90 days. The price at t = 0 is $120 and the stock has a volatility of 40%. The risk-free rate is 6.38% per year. • Calculate the call price, using the Black-Sholes formula. • Calculate the put price with the same strike and maturity, using the put-call parity.arrow_forward
- Question 5: A call option on a stock that expires in a year has a strike price of $99. The current stock price is $100 and the one-year risk free interest rate is 10%. The price of this call is $6. a) Is arbitrage possible? What is the arbitrage position? b) do you het this minimum? Find the minimum arbitrage profit for this strategy. Whenarrow_forwardWhat is the price of a one-month European call option given the following information: the exercise price is $19, the current share price is $19, and the risk-free interest rate is 1% per month. Furthermore, the share price is expected to be either $25 or $15 at the end of the month. The company does not pay dividends. Assume a risk-neutral world. Group of answer choices $3.11 $1.91 $2.49 $3.32 None of the above answers is correct.arrow_forwardSuppose company B stock is last time traded at 68.23$, and our analysis shows that in one year from now, its price would either increase or decrease by 25%. (i.e. d=0.75, u=1.25) Assume that risk-free rate is 2.5% and the company pays no dividend in this time period. 4) What would be the payoff for a long position on European Call Option written on Company B equity, with time to maturity of 1 year, and strike price of 75$? Calculate the payoff for the up and down scenariosarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
The Exchange Rate and the Foreign Exchange Market [AP Macroeconomics Explained]; Author: Heimler's History;https://www.youtube.com/watch?v=JsKLBpy6cEc;License: Standard Youtube License