Question #77

Reading: Reading 31 Valuation of Contingent Claims

PDF File: Reading 31 Valuation of Contingent Claims.pdf

Page: 36

Status: Unattempted

Part of Context Group: Q77-78 First in Group
Shared Context
- Barlow calculated the value of an American call option on the stock shown in Exhibit 2. Which of the following is closest to the value of this call option? A) $15.41. B) $14.84. C) $15.12.
Question
Using the information in Exhibit 2, Barlow computes the value of a European put option. Which of the following is closest to the value of this option?
Answer Choices:
A. $1.97
B. $4.84
C. $1.41
Explanation
Using the information in Exhibit 2, this value can be determined from put-call parity as follows: Put = Call + Xe−rt − S So we have Put = $14.8445 + $100.00e(−7.00% × 0.5) − $110.00 = $1.4050
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