Answer-first summary for fast verification
Answer: $6.00
For an American put option, the lower bound is \[ P \ge K - S_0 \] because the holder can exercise immediately. Here: - \(K = 20\) - \(S_0 = 14\) So, \[ P \ge 20 - 14 = 6 \] Therefore, the lower bound is **$6.00**.
Author: Manit Arora
Ultimate access to all questions.
Q-180.5. What is the lower bound for the price of a nine (9)-month American PUT option on a non-dividend-paying stock when the stock price is $14.00, the strike price is $20.00, and the risk-free interest rate is 4.0% per annum?
A
zero (0)
B
$5.22
C
$5.41
D
$6.00
No comments yet.