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A Stock Is Currently Selling for $21

question 23

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A stock is currently selling for $21.00.A 3-month call option with a strike price of $20 has an option premium of $1.30.The risk-free rate is 3 percent and the market rate is 8 percent.What is the option premium on a 3-month put with a $20 strike price? Assume the options are European style.


Definitions:

Conditional Probability

The probability of an event occurring given that another event has already occurred.

Conditional Probability

The probability of an event occurring given the occurrence of another event, often represented as P(A|B).

Independent Events

Two or more events where the occurrence of one does not affect the probability of the other(s).

Event Will Not Occur

The probability that a specific event does not happen, which can be calculated by subtracting the event’s probability of occurring from 1.

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