Question
In: Finance
A two-month European put option on a non-dividend-paying stock has a strike price of $65. The...
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A two-month European put option on a non-dividend-paying stock has a strike price of $65. The risk-free interest rate is 5% per annum and the stock price is $58.
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a) What is the lower bound for this put option?
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b) If the market price of this put option is $3, is there an arbitrage opportunity?
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c) If so, define the arbitrage strategy.
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Solutions
jeff jeffy answered 1 year agoRelated Solutions
A two-month European put option on a non-dividend-paying stock has a strike price of $65. The...
A two-month European put option on a non-dividend-paying stock
has a strike price of $65. The risk-free interest rate is 5% per
annum and the stock price is $58. a) What is the lower bound for
this put option? b) If the market price of this put option is $3,
is there an arbitrage opportunity? c) If so, define the arbitrage
strategy.
Calculate the price of a four-month European put option on a non-dividend-paying stock with a strike...
Calculate the price of a four-month European put option on a
non-dividend-paying stock with a strike price of $60 when the
current stock price is $55, the continuously compounded risk-free
interest rate is 10% per annum, and the volatility is 31% per
annum.
Calculate the price of the put option if a dividend of $2.50
expected in the next three months.
Please show all work. Thank you!
Calculate the price of a three-month European put option on a non-dividend-paying stock with a strike...
Calculate the price of a three-month European put option on
a non-dividend-paying stock with a strike price of $50 when the
current stock price is $50, the risk-free interest rate is 10% per
annum, and the volatility is 30% per annum.
The price of a European call option on a non-dividend-paying stock with a strike price of...
The price of a European call option on a non-dividend-paying
stock with a strike price of $50 is $6 and the stock price is $52.
The continuously compounded risk-free rate is 3% and the time to
maturity is six months. What is the price of a six-month European
put option on the stock with a strike price of $50?
A European put will expire in two months on a non-dividend paying stock. The strike price...
A European put will expire in two months on a non-dividend
paying stock. The strike price for the put is $25 and the price of
the put option is currently $2.00. The current value of the stock
underlying the put option is $18 and the risk-free rate (based on
continuous compounding) is 4%. Using this information explain how
an investor can take advantage of any arbitrage opportunity,
assuming one exists. If arbitrage is possible, calculate the
present value of any...
A put option on a non-dividend-paying stock is priced at $5.50. The strike price of the...
A put option on a non-dividend-paying stock is priced at $5.50.
The strike price of the put option is $55. When current stock price
is $60, this put option has an intrinsic value of ( ) and a time
value of ( )
a. $5.50, $0
b. $5.00, $5.50
c. $5.50 , $5.00
d. $0, $5.50
A two-month European put option on a non-dividend-paying stock is currently selling for $2.00. The stock...
A two-month European put option on a non-dividend-paying
stock is currently selling for $2.00. The stock price is $52, the
strike price is $55, and the risk-free interest rate is 5% per
annum. What opportunities are there for an arbitrageur?
What is the price of a European put option on a non- dividend-paying stock when the...
What is the price of a European put option on a non-
dividend-paying stock when the stock price is $68, the strike price
is $70, the risk-free interest rate is 6% per annum, the volatility
is 35% per annum, and the time to maturity is six months?
What is the price of a European put option on a non-dividend-paying stock when the stock...
What is the price of a European put option on a
non-dividend-paying stock when the stock price is $100, the strike
price is $90, the risk- free interest rate is $5% per annum, the
volatility is 35% per annum (continuously compounded), and the time
to maturity is 6 months? Use the Black-Scholes-Merton option
pricing formula.
One second later, the stock is traded at 101. How would you
estimate the new price for the option without the
Black-Scholes-Merton option pricing formula?
What is the price of a European put option on a non-dividend-paying stock when the stock...
What is the price of a European put option on a
non-dividend-paying stock when the stock price is $69, the strike
price is $70, the risk-free interest rate is 5% per annum, the
volatility is 35% per annum, and the time to maturity is six
months?
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