Consider a stock index currently standing at 250. The dividend yield, q , on the index is 4% per annum and the risk-free rate, r , is 6% per annum. A 3-month European Call option on the index with a strike price of 245 is currently worth $10. We want to value a 3-month European put option on the index with a strike price of 245.

a) The put-call parity relationship for European-style options on a non-dividend paying stock with price S0 and strike K is c + KerT p + S0, where r is the risk-free rate and c & p are the value of the call and the put, respectively. What is the put-call parity relationship for the dividend yielding index? Carefully define your notation.

b) What is the value of the put in this question?

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