Question Of The Week - Option Pricing - CFA Level 1

This topic has 5 replies, 4 voices, and was last updated Jul-18 by Stuj79.

Author

Posts
- exam_whiz
  Participant
  
  Sr Associate
  
  01 Dec 2017 at 9:22 pm
  Up
  46
  Down
  
  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
  Participant
  
  Sr Associate
  
  05 Dec 2017 at 8:18 am
  
  Up
  0
  Down
  
  Correct Answer: A
- kmalone32
  Participant
  
  Summer Associate
  
  11 Dec 2017 at 12:27 pm
  
  Up
  5
  Down
  
  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
  Participant
  
  Sr Associate
  
  12 Dec 2017 at 9:49 am
  
  Up
  1
  Down
  
  Yes that is true! Reasoning like that is useful as it gives you more time to focus on other questions.
- Alaric
  Participant
  
  Summer Associate
  
  16 Jul 2018 at 5:15 pm
  
  Up
  5
  Down
  
  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
  
  Associate
  
  16 Jul 2018 at 5:21 pm
  
  Up
  3
  Down
  
  @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.
Author

Posts

Viewing 5 reply threads

You must be logged in to reply to this topic.