Options, Put call parity
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A stock is worth $20 today, and it may increase or decrease $5 over the next year. If the risk-free rate of interest is 6 percent, calculate the market price of the at-the money put and call options on this stock that expire in one year. Which option is more valuable, the put or the call? Is it always the case that a call option is worth more than a put if both are tied to the same underlying stock, have the same expiration date, and are at the money? (Hint: use the put-call parity to prove the statement true or false.)
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Solution Summary
The solution calculates the market price of the at-the money put and call options and answers the question: Is it always the case that a call option is worth more than a put if both are tied to the same underlying stock, have the same expiration date, and are at the money?
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