#5

Consider the options of a company where the stock price is $23.36. Suppose that the call and put options of this company with an exercise price of $22.50 are trading in the options market for a price of $2.61 (call) and $1.81 (put), respectively. Both options have 21 weeks left for expiration.

If the call option is correctly priced, find the correct price of the corresponding put option using the put-call parity relation. Assume that the annual risk-free rate is 0.4%. Is the put option overvalued, correctly valued, or undervalued? Explain.