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WT Foods stock is selling for $38 a share. The 6-month $40 call on this stock is selling for $2.01 while the 6-month $40 put is priced at $3.60. What is the continuously compounded risk-free rate of return?

Respuesta :

Answer:

2.1%

Explanation:

The computation of continuously compounded risk-free rate of return is shown below:-

Continuously compounded risk-free rate of return = -In(number)

= -ln((38 + 3.60 - 2.01) ÷ 40) ÷ (6 ÷ 12)

= 0.020605786

or

= 2.1%

For a better explanation, kindly find the spreadsheet as attached.

Hence we have applied the above formula to reach the continuously compounded risk-free rate of return.

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