In February Gid Gardner sold a September 55 call on Dane Corporation stock for $4,375 per share

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In February Gid Gardner sold a September 55 call on Dane Corporation stock for $4,375 per share and simultaneously bought a September 55 put on the same stock for $6 per share. At the time. Treasury bills coming due in September were priced to yield 12.6%, and Dane stock sold for $53 per share.
a. What value would put-call parity suggest was appropriate for the Dane put?
b. Dane was expected to make three dividend payments between February and September. Could that account for the discrepancy between your answer to part (a) and the actual price of the put? Why or why not?
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Fundamentals of Investments

ISBN: 978-0132926171

3rd edition

Authors: Gordon J. Alexander, William F. Sharpe, Jeffery V. Bailey

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