# Option Q

Assume that the value of a put option with a strike price of \$100 and six months remaining to maturity is \$5. For a stock price of \$110 and an interest rate of 6%, what value is closest to the corresponding call option with the same strike price and same expiration as the put option? A) \$11.99. B) \$12.74. C) \$15.00. D) \$17.87. Your answer: B was incorrect. The correct answer was D) \$17.87. Call value = \$110 + \$5 – \$100 / 1.060.5 = \$17.87. Just a quick question - why do we add the value of the put when determining the price of the call? Thanks

I think the key word is ‘corresponding’. Question is referring to put-call parity, hence c = S + p - X/(1+r)^T

righto, thanks Isura

To add, you can’t price the call independent of the put because of arbitrage due to put-call parity.

Call=Stock price+Put premium - Put strike price/(1+RFR)^(0.5 years) This is straight from the call-put parity equation, but the logic behind it is a bit more complex.

newsuper Wrote: ------------------------------------------------------- > Assume that the value of a put option with a > strike price of \$100 and six months remaining to > maturity is \$5. For a stock price of \$110 and an > interest rate of 6%, what value is closest to the > corresponding call option with the same strike > price and same expiration as the put option? > > A) \$11.99. > > B) \$12.74. > > C) \$15.00. > > D) \$17.87. > > > Your answer: B was incorrect. The correct answer > was D) \$17.87. > > Call value = \$110 + \$5 – \$100 / 1.060.5 = \$17.87. > > > Just a quick question - why do we add the value of > the put when determining the price of the call? > > Thanks C+x/(1+r)^T = S+P In this case C = 115-110/(1.06^.5)