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Question of the Week – Option Pricing

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    • Avatar of exam_whizexam_whiz
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        • Undecided
        01 Dec 2017 at 9:22 pm
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        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
      • Avatar of kmalone32kmalone32
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          11 Dec 2017 at 12:27 pm
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          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.

        • Avatar of AlaricAlaric
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            • Undecided
            16 Jul 2018 at 5:15 pm
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            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…

          • Avatar of Stuj79Stuj79
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              • CFA Charterholder
              16 Jul 2018 at 5:21 pm
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              @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. 

            • Avatar of exam_whizexam_whiz
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                • Undecided
                12 Dec 2017 at 9:49 am
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                Yes that is true!  Reasoning like that is useful as it gives you more time to focus on other questions.

              • Avatar of exam_whizexam_whiz
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                  • Undecided
                  05 Dec 2017 at 8:18 am
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                  Correct Answer:  A

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