You are interested in purchasing a 1-year call for Unic Technology at a strike price of $80. The stock is currently selling for $70; a 1-year put for Unic at $80 is worth $15. The risk-free interest rate is 3%, and the yield on Unic's 1-year senior bonds is 5%. The price of the call should be closest to: $5 $6 $7

A synthetic call can be created with a long put, long stock, and short bond. We are given: P0 = $15 (put price at time 0)S0 = $70 (stock price at time 0)X = $80 (strike price)r = 3% (risk-free rate)T = 1 (1 year) Plug this into the synthetic call formula (derived from put-call parity): C0 = P0 + S0 – X / (1 + r)^T = 15 + 70 – 80 / (1 + 0.03)^1 = $7.33

Question Of The Week - Derivatives (4) - CFA Level 1

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- AdaptPrep
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  12 May 2018 at 7:32 pm
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  You are interested in purchasing a 1-year call for Unic Technology at a strike price of $80. The stock is currently selling for $70; a 1-year put for Unic at $80 is worth $15. The risk-free interest rate is 3%, and the yield on Unic’s 1-year senior bonds is 5%. The price of the call should be closest to:
  - $5
  - $6
  - $7
- AdaptPrep
  Participant
  - Undecided
  16 May 2018 at 7:08 am
  Up
  2
  ::
  A synthetic call can be created with a long put, long stock,
  and short bond.
  
  We are given:
  - P0 = $15 (put price at time 0)
  - S0 = $70 (stock price at time 0)
  - X = $80 (strike price)
  - r = 3% (risk-free rate)
  - T = 1 (1 year)
  Plug this into the synthetic call formula (derived from
  put-call parity):
  
  C0 = P0 + S0 – X / (1 + r)^T
  
  = 15 + 70 – 80 / (1 + 0.03)^1
  
  = $7.33
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