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Investment advice and corporate finance
Module 12Investment Management and Corporate FinanceA share trades at RM10.00. A one-year European call with a strike of RM10.00 costs RM1.20, and the one-year risk-free rate is 5% (annual compounding). By put-call parity, what should a one-year European put with the same strike cost?
Put-call parity: C + K ÷ (1 + r)^T = P + S, so P = C − S + K ÷ (1 + r)^T = 1.20 − 10.00 + 10.00 ÷ 1.05 = 1.20 − 10.00 + 9.524 = RM0.72. RM1.20 forgets to discount the strike (the call and put would then be equal at the money). RM1.68 adds the discount (RM0.476) to the call instead of deducting it. RM0.48 is the discount on the strike on its own. Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Section 7 (Topics 13 Options, 14 Futures, 15 Swaps and Interest Rate Options); J. C. Hull, Options, Futures, and Other Derivatives (as at October 2026).
Not discounting the strike: an at-the-money call is worth more than the put when rates are positive.
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