Answer-first summary for fast verification
Answer: $20.82
For a zero-cost package of a long call and a short put with the same strike, set the option prices equal: \(C=P\). By put-call parity for a non-dividend-paying stock, \[ C-P=S-Ke^{-rT} \] So if \(C=P\), then \[ 0=S-Ke^{-rT} \quad\Rightarrow\quad K=Se^{rT} \] Substitute the values: \[ K=20\,e^{0.04}\approx 20.82 \] So the correct strike is **$20.82**.
Author: Manit Arora
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Q-10.1 Assume the current price of a non-dividend-paying stock is $20 (S=20) with volatility of 30%. The riskfree rate is 4%. If option terms are one year (T=1), what is the same strike price required for two European options that creates a range forward contract; i.e., a package consisting of a long (short) call and a short (long) put with zero initial cost?
A
$18.82
B
$19.52
C
$20.82
D
$22.52
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