CFA CFA Level 1 Question of the Week – Option Pricing

Question of the Week – Option Pricing

  • This topic has 5 replies, 4 voices, and was last updated Jul-18 by Stuj79.
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    • exam_whiz
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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
    • exam_whiz
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      Correct Answer:  A

      The stock of Angle Industries is currently trading at 60 per share

    • kmalone32
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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.

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

    • Alaric
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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…

    • Stuj79
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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. 

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