# e0 - Illinois State University

```Krzys’ Ostaszewski, http://www.math.ilstu.edu/krzysio/, Exercise 120, 9/1/7
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Study Note FM-09-07, Problem No. 2
You are given the following information:
• The current price to buy one share of XYZ stock is 500.
• The stock does not pay dividends.
• The risk-free interest rate, compounded continuously, is 6%.
• A European call option on one share of XYZ stock with a strike price of K that expires
in one year costs 66.59.
• A European put option on one share of XYZ stock with a strike price of K that expires
in one year costs 18.64.
Using put-call parity, determine the strike price, K.
A. 449
B. 452
C. 480
D. 559
E. 582
Solution.
Using put-call parity, we have
C ! P = 66.59 ! 18.64 = S ! PV ( K ) = 500 ! Ke!0.06 .
Therefore,
K = ( 500 ! ( 66.59 ! 18.64 )) &quot; e0.06 # 480.0032.