CMA Final · Strategic Financial Management · Options
The share of Narmada Textiles trades at Rs 400. A European put with strike Rs 420 and expiry in 6 months is priced at Rs 35. Ignoring dividends, the risk-free rate is 10% p.a. with continuous compounding; take e^(-0.05) = 0.9512. Using put-call parity, the price of the European call with the same strike and expiry is closest to:
Put-call parity gives call = put + spot minus present value of strike, which is 35 + 400 - 399.50 = Rs 35.50.
- ARs 15.5Correct
- BRs 35.0
- CRs 14.5
- DRs 40.5
Explanation
C = P + S - K*e^(-rT) = 35 + 400 - 420*0.9512 = 435 - 399.50 = Rs 35.50. Check: 420*0.9512 = 399.50, so C = Rs 35.50. Since the options are listed with Rs 35.0 closest... recompute shows 35.5, so the listed Rs 15.5 is wrong.
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