
Explanation:
Apply put-call parity:
Rearrange for the call:
Compute the present value of the strike:
Then:
Correct answer: B ($1.00).
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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