A European Call and a European Put on a Stock

question 10

Multiple Choice

A European call and a European put on a stock have the same strike price and time to maturity.At 10:00am on a certain day,the price of the call is $3 and the price of the put is $4.At 10:01am news reaches the market that has no effect on the stock price or interest rates,but increases volatilities.As a result the price of the call changes to $4.50.Which of the following is correct?

• A) The put price increases to $6.00
• B) The put price decreases to $2.00
• C) The put price increases to $5.50
• D) It is possible that there is no effect on the put price

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