CFA CFA Level 1 Question of the Week – Option Pricing

Question of the Week – Option Pricing

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• exam_whiz
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• Undecided
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
• 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
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• Undecided
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
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• CFA Charterholder
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
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• Undecided
1

Yes that is true!  Reasoning like that is useful as it gives you more time to focus on other questions.

• exam_whiz
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• Undecided
0