A Call Option Has a Premium of $0

question 28

Multiple Choice

A call option has a premium of $0.60,a strike price of $40,and 3 months to expiration.The current stock price is $39.60.The stock will pay a $0.80 dividend two months from now.The risk-free rate is 3 percent.What is the premium on a 3-month put with a strike price of $40? Assume the options are European style.

• A) $0.25
• B) $0.51
• C) $0.78
• D) $1.23
• E) $1.50

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