A European Call Option on a Stock Has an Exercise

question 26

Multiple Choice

A European call option on a stock has an exercise price of $100 and expires in 5 months. The option is currently selling for $3.80 per option share. A European put option on the same stock
With the same exercise price and time to expiration is selling for $22.20. The stock itself is
Selling for $80.81. The annualized risk-free rate is 2.25%. According to the put-call parity
Model,

• A)the call option is underpriced relative to the put option by $0.13.
• B)the put option is overpriced relative to the call option by $0.59.
• C)the put option is overpriced relative to the call option by $0.13.
• D)the put and the call are correctly priced relative to one another, but we do not know whether either is fairly priced.

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