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a call option on Jupiter Motors stock with an exercise price of $75 and one-year expiration is selling at $4. A put option on Jupiter stock with an exercise price of $75 and one-year expiration is selling at $2.50. If the annual risk-free rate is 2% and Jupiter pays no dividends, what should the stock price be

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thaovtp1407

Answer:

$75.01

Explanation:

Given:

  • Call price (C): $4
  • Put price (P): $2.5
  • risk-free rate (r): 2% = 0.02
  • Time: 1 year
  • Exercise price (K): $75

Let Share price: [tex]S_{0}[/tex]

As per put-call party, we have the following equation:

  • C + K[tex]e^{-rt}[/tex] = P+[tex]S_{0}[/tex]

<=> [tex]S_{0}[/tex]  = C + K[tex]e^{-rt}[/tex] - P

<=> [tex]S_{0}[/tex]  = 4 +  75*[tex]e^{-0.02*1}[/tex] - 2.5

<=> [tex]S_{0}[/tex]  = 1.5 + 73.51 = $75.01

So the the stock price is $75.01

The stock price or the on-call price of the stock is the price that the stockbrokers explain to the customers who wish to buy the shares or the stock. Thi price is known by the fluctuation in the market price and the market share.  

The stock price is $75.01.

The Given information are:

  • Call price (C): $4
  • Put price (P): $2.5
  • Risk-free rate (r): 2% = 0.02
  • Time: 1 year
  • Exercise price (K): $75

Let the Share price be = [tex]S_{0}[/tex]

As per the put-call parity, the equation is= [tex]C+Ke^{-rt}=P+S_{0}[/tex]

[tex]S_{0} =C+Ke^{-rt-P} \\S_{0} =4+75\times e^{-0.02+1}-2.5\\S_{0} =1.5+73.51= \$75.01[/tex]

So the stock price is $75.01.

To know more about the calculation of the stock price, refer to the link below:

https://brainly.com/question/15760153

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