Answer-first summary for fast verification
Answer: $5.78
For a European put on a non-dividend-paying stock, the lower bound is: \[ \max\left(0, Ke^{-rT} - S_0\right) \] Here: - \(S_0 = 24\) - \(K = 30\) - \(r = 3\%\) - \(T = 0.25\) years Compute the present value of the strike: \[ 30e^{-0.03\times0.25} = 30e^{-0.0075} \approx 29.78 \] So the lower bound is: \[ 29.78 - 24 = 5.78 \] Therefore, the correct answer is **$5.78**.
Author: Manit Arora
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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?
A
zero (0)
B
$5.11
C
$5.78
D
$6.00
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