Question

The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $125 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $125 is $10.50. a. If the risk-free interest rate is 5% per year, what must be the price of a 6-month call option on C.A.L.L. stock at an exercise price of $125 if it is at the money? (The stock pays no dividends.

Answer 1

Answer:

he price of a 6-month call option on C.A.L.L. stock is 15.27

Explanation:

The price of a 6-month call option on C.A.L.L. stock at an exercise price of $125 is computed as;

$C+Xe^{rt} = P + S$

Where as,

C = Value of call,

X = strike price,

P = value of put ,

S = Stock price

Thus,

$C + 125e^{-5} = 10.27 + 125$

C + 120 = 135.27

C = 15.27