Explanation:
Use put-call parity:
Rearrange to find the value of the put:
P = \`$2.26` - \`$20` + \`$20` / (1.03) P = \`$1.67`(Book 4, Module 60.1, LO 60.a)
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Question 8
A derivatives trader has used the binomial valuation methodology to value a call and has estimated a value of $2.26. Assuming a stock price of $20, a strike price of $20, and a risk-free rate of 3%, what is the estimated value of a put option on the stock with the same strike price?
A
$0.97.
B
$1.27.
C
$1.67.
D
$1.97.
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