Reddit

Q-180.2. What is the lower bound for the price of a three (3)-month European PUT option on a non-dividend-paying stock when the stock price is $24.00, the strike price is $30.00, and the risk-free interest rate is 3.0% per annum? | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

For a European put on a non-dividend-paying stock, the lower bound is

p \ge \max\left(Ke^{-rT} - S_0,\ 0\right)

Here:

$S_0 = 24$
$K = 30$
$r = 3\%$
$T = 0.25$ years

So,

30e^{-0.03 \times 0.25} - 24 = 30e^{-0.0075} - 24 \approx 29.783 - 24 = 5.783

Therefore, the lower bound is approximately $5.78.

Comments (0)

No comments yet.

Financial Risk Manager Part 1

Get started today

Comments (0)

Get started today

Comments (0)

Q-180.2. What is the lower bound for the price of a three (3)-month European PUT option on a non-dividend-paying stock when the stock price is `$24.00`, the strike price is `$30.00`, and the risk-free interest rate is 3.0% per annum?