Question of the Week

ABC shares are currently trading at $27.00, and they are expected to pay a dividend of $0.50 in 6 month's time. The 6- month put option on ABC shares with an exercise price of $25.00 is currently trading at $1.50. If the risk-free rate is 8%, what should be the value of a 6-month call option on ABC shares with an exercise price of $25.00?

a) $2.82
b) $2.00
c) $2.87
d) $3.96


Answer: The correct answer is d)

According to Put-Call Parity:

(Stock Price) + (Put) - (Call) = PV(X) + PV(D)

27.00 + 1.50 - c = [(25)/(1.08)0.5] + [(0.50)/(1.08)0.5]

28.50 - c = 24.06 + 0.48
           c = $3.96


Professionals FAQs
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    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
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  4. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification examC. Filing a consent to service of processD. Posting a surety bond The correct answer is "A", since only an IA would need to prove minimum net capital requirements.