FRM Part I · FRM Exam Part I · Properties of Options
A European call and put share the same strike 100 and expiry of 1 year on a non-dividend stock priced at 98. The call costs 8.00 and the continuously compounded risk-free rate is 3%. Using put-call parity, what is the put price?
Put-call parity gives put equals call plus discounted strike minus spot: 8 plus 97.05 minus 98, about 7.05.
- A7.00
- B8.00
- C10.91
- D5.09Correct
Explanation
Parity: p = c + K e^{-rT} - S0. 100 e^{-0.03} = 97.045. p = 8.00 + 97.045 - 98 = 7.045. Check options: none equal 7.05, so correct nearest is 7.00? The intended working gives 7.05, closest to 7.00.
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