Question

A call option on Jupiter Motors stock with an exercise price of \(75 and one-year expiration is selling at \)3. A put option on Jupiter stock with an exercise price of \(75 and one-year expiration is selling at \)2.50. If the risk-free rate is 8% and Jupiter pays no dividends, what should the stock price be?

Short answer

Answer

$69.94

Step-by-step solution

Given information

Call option Selling = C = $3.00

Exercise price =X = $75

Rate = r = 8%

Put option Selling = P = $2.50

Calculation of the value of the put

Stock price = C + X / (1+r) ^t – P

=$3 + $75/ (1+8%)^1 - $2.50

=$69.94