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The current (continuously compounded annual) interest rate is 1%. a) A stock with a spot (current) price of $20 pays a (continuously compounded annual) dividend

  1. The current (continuously compounded annual) interest rate is 1%.

a) A stock with a spot (current) price of $20 pays a (continuously compounded annual) dividend of 3%. A 1 year European call on the stock costs $0.60 more than a 1 year European put with the same strike price. Find the strike price.

b) Instead of a continuously compounded annual dividend, the same stock pays a single cash dividend of $0.30 in three months (0.25 years). A 6 month (0.5 year) at-the-money (strike price = $20) costs $1.00. Calculate the 6 month forward price of the stock. Calculate the price of a 6 month European at-the-money put.

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