Exercise 6A To find the put premium using the put-call parity From the slide Stock index option-continuous compounding Stock index = 4500 (So), with dividend yield =4% per annum (q) Risk free rate = 3% per annum (r) 3-month (T= 0.25) European call option on the index: Strike = 4450 (K), call premium = $120 (c) Find price (p) of a 3-month index put option with strike 4450. Look ppt slide on single share, this instrument is a Stock index, continuous compounding. First, list all the assumptions of put call parity. European Same strike Same maturity (call date and put date) Same asset Second, do the calculation Continuous compounding Remember q,r,T all in years Exercise 6B Relative volatility of an asset class index to volatility of a single asset. Asset class- shares, bonds, properties, commodities etc Index - represent the movement of all assets in the class Single asset - referring to one share only Example of asset class index and single asset: Asset class indices Single share E.g Toyota Exercise 6C Protective put for share portfolio insurance; effect of a higher beta value on insurance cost (put premium) Buy a protective put in the form of insurance Higher beta higher risk The put premium will be higher Go Research provide two reasons why it is higher. 1