The stock of Angle Industries is currently trading at $60 per share. A 90-day call option on the stock is priced at $7.50. The exercise price of this option is $55. If the applicable risk-free rate of interest is 8%, what is the price of a 90-day put option on Angle Industries with an exercise price of $55?$1.47$11.37$13.53

Also, you can intuitively tell that the put price would be below $7.50. The 55 call is $5 in the money trading at $7.50, so the value of the 55 put, which is $5 out of the money, would obviously be lower than the 55 call.

exam_whiz said: Yes that is true! Reasoning like that is useful as it gives you more time to focus on other questions. I just started studying for the CFA and got the good answer this way. I guess I still have to learn the formula for the real exam, though...

A CFA Level 1 Discussion About Question Of The Week

Add A Reply

This topic has 5 replies, 4 voices, and was last updated Jul-185:21 pm by Stuj79.

Author

Posts
- exam_whiz
  Participant
  - Undecided
  01 Dec 2017 at 9:22 pm
  Up
  65
  ::
  The stock of Angle Industries is currently trading at $60 per share. A 90-day call option on the stock is priced at $7.50. The exercise price of this option is $55. If the applicable risk-free rate of interest is 8%, what is the price of a 90-day put option on Angle Industries with an exercise price of $55?
  - $1.47
  - $11.37
  - $13.53
- kmalone32
  Participant
  11 Dec 2017 at 12:27 pm
  Up
  15
  ::
  Also, you can intuitively tell that the put price would be below $7.50. The 55 call is $5 in the money trading at $7.50, so the value of the 55 put, which is $5 out of the money, would obviously be lower than the 55 call.
- Alaric
  Participant
  - Undecided
  16 Jul 2018 at 5:15 pm
  Up
  9
  ::
  
  exam_whiz said:
  
  Yes that is true! Reasoning like that is useful as it gives you more time to focus on other questions.
  
  I just started studying for the CFA and got the good answer this way. I guess I still have to learn the formula for the real exam, though…
- Stuj79
  Participant
  - CFA Charterholder
  16 Jul 2018 at 5:21 pm
  Up
  4
  ::
  @Alaric This “put call parity” formula is one of the most fundamental formulas around when it comes to options so it is definitely worthwhile, and actually pretty necessary to learn.
- exam_whiz
  Participant
  - Undecided
  12 Dec 2017 at 9:49 am
  Up
  1
  ::
  Yes that is true! Reasoning like that is useful as it gives you more time to focus on other questions.
- exam_whiz
  Participant
  - Undecided
  05 Dec 2017 at 8:18 am
  Up
  0
  ::
  Correct Answer: A
Author

Posts

Viewing 5 reply threads

You must be logged in to reply to this topic.