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The price of a European call that expires in six months and has a strike price of $30 is $2. The underlying stock price is $29, and a dividend of $0.50 is expected in two months and again in five months. The term structure is flat, with all risk-free interest rates being 10%. What is the price of a European put option that expires in six months and has a strike price of $30

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thaovtp1407

Answer:

p = $2.51

Explanation:

Given:

  • D = $0.50
  • Stock price: $29 (s)
  • Interest rates: 10%.
  • Strike price of $30 : $2 (c)

To find the the price of a European put option, we use here pit call parity  that is :

c - p = s - k [tex]e^{-rt}[/tex]   -   D    

<=> p = c - s + k [tex]e^{-rt}[/tex]   + D    

<=> p = 2 -29 + 30[tex]e^{-0.1*\frac{6}{12} }[/tex] + 0.5

<=> p = $2.51

Hope it will find you well

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