Explanation:
For a non-dividend-paying stock, the American call equals the European call.
Given:
For the American put, a useful lower bound is:
Compute:
A standard upper bound is:
Therefore, the bounds are $4.17 and $5.00.
Correct answer: D.
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Q-181.5. The price of an American call on a non-dividend-paying stock is $3.00. The stock price is $40.00, the strike price is $42.00, and the expiration date is in six (6) months. The risk-free interest rate is 4.0%. What are the lower and upper bounds for the price of an American put on the same stock with the same strike price and expiration date?
A
$1.17 and $2.00
B
$2.17 and $3.33
C
$3.06 and $5.17
D
$4.17 and $5.00
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