Answer-first summary for fast verification
Answer: zero (0)
For a call option on a non-dividend-paying stock, the lower bound is \[ c \ge \max\left(S_0 - Ke^{-rT},\ 0\right) \] Here: - \(S_0 = 19\) - \(K = 20\) - \(r = 5\%\) - \(T = 0.5\) years Compute the intrinsic present-value comparison: \[ 19 - 20e^{-0.05 \times 0.5} = 19 - 20e^{-0.025} \approx 19 - 19.5062 = -0.5062 \] Because this value is negative, the lower bound is **zero (0)**.
Author: Manit Arora
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Q-180.3. What is the lower bound for the price of a six (6)-month CALL option on a non-dividend-paying stock when the stock price is $19.00, the strike price is $20.00 and the risk-free interest rate is 5.0% per annum?
A
zero (0)
B
$0.50
C
$1.00
D
$1.51
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