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Currently, a call option on Straus stock is available with an exercise price of $50 and an expiration date one year from now. Assume that the price of Straus Corporation stock today is $50. Furthermore, it is estimated that Straus stock will be selling for either $80 or $20 in one year. Also, assume that the annual risk-free interest rate on a one- year Treasury bill is 10 percent, continuously compounded. Therefore, the T-bill will pay $50 × e^(0.1), or $55.26 Find the call option premium. Use the put-call parity condition to find a put option premium.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92885012

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