You are provided with the following option information: Call Premium Put Premium Current Share Price Time to Maturity Risk Free Rate R1

Finance Dec 09, 2020

You are provided with the following option information: Call Premium Put Premium Current Share Price Time to Maturity Risk Free Rate R1.7 R4.47 R68.56 2 months 7.8% Assume that everything is correctly priced, the stock does not pay any dividends and both the put and call have the same exercise price. Approximately what is the exercise price of the above options? A) R96.47 B) R60.7 C) R89.96 D) R86.71 E) R72.26

Expert Solution

Using put call parity
Ke^(-rt)=S+P-C
=>K=(S+P-C)*e^(rt)=(68.56+4.47-1.7)*e^(7.8%*2/12)=72.26334359

In Excel

=(68.56+4.47-1.7)*exp(7.8%*2/12)

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