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The price of a European call option on a non-dividend-paying stock with a strike price of $50 is $6. The stock price is $51, the continuously compounded risk-free rate (all maturities) is 6% and the time to maturity is one year. What is the price of a one-year European put option on the stock with a strike price of $50?

Answer :

Answer:

$3.17

Explanation:

X = $50

Price of the call (C) = $6

Stock Price (S) = $50

risk-free rate (rf) = 6%

time to maturity (t) = 1

Price of the Put (P) = ?

Using Put-Call parity equation, we have the following:

C + X / (1+r)^t = S + P

6 + 50 / (1+0.06)^1 = 50 + P

--> P = $3.17

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