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Answer: $1.00
Apply put-call parity: \[ C + PV(K) = P + S \] Rearrange for the call: \[ C = P + S - PV(K) \] Compute the present value of the strike: \[ PV(K)=15e^{-0.04\times 0.25}=15e^{-0.01}\approx 14.85 \] Then: \[ C = 1.85 + 14.00 - 14.85 \approx 1.00 \] **Correct answer: B ($1.00).**
Author: Manit Arora
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Q-181.2. The price of a non-dividend-paying stock is $14.00 and the price of a three (3)-month European put option on the stock with a strike price of $15.00 is $1.85. The risk free rate is 4.0% per annum. What is the price of a three (3)-month European call option with a strike price of $15.00?
A
$0.65
B
$1.00
C
$1.15
D
$1.88
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