CMA Final · Strategic Financial Management · Options
A share trades at Rs 500. A 6-month European call with strike Rs 546 is priced at Rs 20. The 6-month risk-free rate is 4% for the period (discounting by dividing by 1.04) and no dividends are expected. By put-call parity, what is the price of a European put with the same strike and expiry?
The put should be priced at Rs 45. Put-call parity gives put equals call minus spot plus present value of the strike. The strike of Rs 546 discounts to Rs 525, so 20 minus 500 plus 525 equals 45.
- ARs 20
- BRs 25
- CRs 45Correct
- DRs 66
Explanation
PV of strike = 546/1.04 = Rs 525. Put = Call - Spot + PV(strike) = 20 - 500 + 525 = Rs 45. Rs 66 results from not discounting the strike (20 - 500 + 546).
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