Problem:
Audrey is considering an investment in Morgan Communications, whose stock currently sells for $65. A put option on Morgan's stock, with an exercise price of $56, has a market value of $4.38. Meanwhile, a call option on the stock with the same exercise price and time to maturity has a market value of $9.81. The market believes that at the expiration of the options the stock price will be either $70 or $50, with equal probability.
Required:
Question: What is the premium associated with the put option?
Note: Provide support for your underlying principle.