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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? | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

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.

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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?