The common stock of Triangular File Company is selling at $102. A 26-week call option written on Triangular File’s stock is selling for $20. The call’s exercise price is $112. The risk-free interest rate is 8% per year.
a. Suppose that puts on Triangular stock are not traded, but you want to buy one. Which combination will produce the same results?
Answer: Buy call, invest PV(EX), sell stock short
b. Suppose that puts are traded. What should a 26-week put with an exercise price of $112 sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Put option price $