For all problems where a risk free rate or a dividend yield is given, assume that the interest rate and the dividend yield are annual and continuously compounded rates.

Problem 5

Assume that a stock price is $200 per share and that the stock does not pay any dividend. The options are one-year European options and the exercise price of these options is $200 per share. The call price is $20 per share and the put price is $15 per share. What is the yield of a risk-free zero-coupon bond which pays $1 in one year? Give this yield per annum with continuous compounding