A Call Option with 60 Days to Maturity,exercise Price of $12.00,underlying

question 15

Multiple Choice

A call option with 60 days to maturity,exercise price of $12.00,underlying spot price of 14.00 p.a.is valued at $2.24.If the put option with these characteristics is trading at $0.06,at what risk-free rate will put-call parity hold? (Assume the call option premium is correctly priced and there are no dividends. )

• A) \( 5 \% \)
• B) \( 6 \% \)
• C) \( 7 \% \)
• D) \( 8 \% \)

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Definitions:

Interim Statements

Financial reports prepared and presented for periods shorter than a fiscal year, such as quarterly or monthly financial statements.

Prepaid Rent

An expense account that represents rent payments made in advance of the rental period, treated as an asset on the balance sheet until the period to which it relates passes.

Adjusting Entry

Accounting records entries recorded at the close of an accounting period for the purpose of assigning incomes and expenses to the timeframe in which they truly transpired.

Net Income

The total profit of a company after all expenses, including taxes and operational costs, have been subtracted from total revenues.