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A European call option on a non-dividend payment stock with a strike price of$18 and an expiration date in one year costs $3.
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Answer #1

PV of Strike Price = STrike Price * PVF @10% with continous Compounding

= $ 18 * e^-0.10

= $ 18 * 0.9048

= $ 16.29

As Value of Call & PV of Strilke Price < Stock Price, Put call Parity doesn't hold good.

Vc + PV of Strike Price = $ 3 + $ 16.29

= $ 19.29

Stock Price = $20

STrategy:

Hold a call, Short Sell a share and Wrie a Put option.

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