What is a lower bound for the price of a two-month European putoption on a...

What is a lower bound for the price of a two-month European put option on a non-dividend-paying stock when the stock price is $21, the strike price is $24, and the continuously compounded risk-free interest rate is 8% per annum

Solutions

Expert Solution

Lower Bound of the put option =

P >= Strike Price * e^(-r*t) - Stock Price

t = 2 / 12 = 0.16666666666

r = 0.08

>= 24 * e^(-0.08*0.16666666666) - 21

>= (24 * 0.98675516181) - 21

>= 23.68 - 21

>= 2.68

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

What is a lower bound for the price of a three–month i) European call and ii)...

What is a lower bound for the price of a three–month i) European call and ii) European put option on a non–dividend–paying stock when the stock price is $18, the strike price is $15, and the risk–free interest rate is 6% per annum continuous compounding?

a. What is a lower bound for the price of a five-month call option on a...

a. What is a lower bound for the price of a five-month call option on a non-dividend-paying stock when the stock price is $42, the strike price is $38, and the continuously compounded risk-free interest rate is 8% per annum? b. What is a lower bound for the price of a four-month European put option on a non-dividend- paying stock when the stock price is $31, the strike price is $35, and the continuously compounded risk-free interest rate is 7%...

If you observed a European call option trading at a price below its theoretical lower bound,...

If you observed a European call option trading at a price below its theoretical lower bound, what transactions must be made today to capture the arbitrage profit on offer? Select one: Long the call option, short a corresponding put option, short sell the underlying stock and invest the proceeds in the bank. Long the call option, short sell the underlying stock and invest the proceeds. Long the call option, long a corresponding put option, and borrow enough money to buy...

what is the lower bound of European put equals to & please prove your argument through...

what is the lower bound of European put equals to & please prove your argument through hypothesis portfolios.

The current price of a stock is $40, and two-month European call options with a strike...

The current price of a stock is $40, and two-month European call options with a strike price of $43 currently sell for $5. An investor who feels that the price of the stock will increase is trying to decide between two strategies: buying 100 shares or buying 800 call options (8 contracts). Both strategies involve an investment of $4,000. a. Which strategy will earn more profits if the stock increases to $42? b. How high does the stock price have...

What is the lower bound on a bivariate CDF with uniform binary marginals? What is the...

What is the lower bound on a bivariate CDF with uniform binary marginals? What is the upper bound on a bivariate CDF with uniform binary marginals? What do these bounds mean? What PDFs do they correspond to?

The current price of XYZ stock is $50, and two-month European call options with a strike...

The current price of XYZ stock is $50, and two-month European call options with a strike price of $51 currently sell for $10. As a financial analyst at Merrill Lynch, you are considering two trading strategies regarding stocks and options. Strategy A involves buying 100 shares and Strategy B includes buying 500 call options. Both strategies involve an investment of $5,000. a. How much is the profit (loss) for strategy A if the stock closes at $65? (sample answer: $100.25...

What is the price of a six-month European call option on a stock expected to pay...

What is the price of a six-month European call option on a stock expected to pay a dividend of $1.50 in two months when the stock price is $50, the strike price is $50, the risk-free interest rate is 5% per annum and the volatility is 30% p.a.? Show all working.

What is the price of a six-month European call option on a stock expected to pay...

1.The price of a three-month European put option on a stock with a strike price of...

1.The price of a three-month European put option on a stock with a strike price of $60 is $5. There is a $1.0067 dividend expected in one month. The current stock price is $58 and the continuously compounded risk-free rate (all maturities) is 8%. What is the price of a three-month European call option on the same stock with a strike price of $60? Select one: a. $5.19 b. $1.81 c. $2.79 d. $3.19 2.For the above question, if the...

Subjects