The common stock of the C. A. L. L. Corporation has been trading in a narrow range around $125 per share for months, and you believe it is going to stay in that range for the next 6 months. The price of a 6-month put option with an exercise price of $125 is $10.50. a. If the risk-free interest rate is 5% per year, what must be the price of a 6-month call option on C. A. L. L. stock at an exercise price of $125 if it is at the money? (The stock pays no dividends.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The price of a 6-month call option on C. A. L. L. stock is $13.52

Explanation:

According to the given data we have the following:

P = Price of 6-months put option=$10.50.

So = Current price=$125

X = Exrecise price=$125

r = Risk free interest rate = 5%

T = Time 6 months = 1/2

In order to calculate the price of a 6-month call option on C. A. L. L. stock at an exercise price of $125 if it is at the money, we would have to use the formula of put-call parity as follows:

C=P+So - (X)

(1+r) ∧T

C=$10.50+$125 - ($125)

(1+0.05) ∧1/2

C=$135.5-121.98

C=$13.52

The price of a 6-month call option on C. A. L. L. stock is $13.52