The price of a non-dividend paying stock is $19 and the price of a three-month european call option on the stock with a strike price of $20 is $1. the risk-free rate is 4% per annum. what is the price of a three-month european put option with a strike price of $20?

The price of the put option will be $1.80

Explanation:

For finding the price of the put option given the price on the call option for the same underlying asset with the same strike price and price is given , we apply the Black-Scholes model of put-call parity to solve the price of the put option.

The put-call parity formular: p = K x e^(-rT) + c - St

where p = price of put of option

           K = the strike price = $20

           r = Applied Interest rate = 4%

           T = time to maturity denominated in year = 3/12 = 0.25

           c= call option price

           St = spot price of underlying asset = $19

Thus p = 20 x e^(-0.04 x 0.25) + 1 - 19 = $1.80

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