For a European put option on an index, the index level is 1,000, the strike price is 1050, the time to maturity is six months, the risk-free rate is 4% per annum, and the dividend yield on the index is 2% per annum
How low can the option price be without there being an arbitrage opportunity?
A. $50.00
B. $43.11
C. $29.21
D. $39.16
D
A lower bound for the put option price is Ke-rT-S0e-qT. In this case, K=1050, S0=1000, T=0.5, r=0.04 and q=0.02 . The lower bound is therefore 1050e-0.04×0.5?1000e-0.02×0.5=39.16 . The put price cannot fall below this without there being an arbitrage opportunity.
You might also like to view...
Name and describe three offensive strategic market plans and three defensive strategic market plans
What will be an ideal response?
Which of the following types of attributes are typical of services?
A) search B) experience C) credence D) feature
A supermarket places its store brand of blackberry jam priced at $5 per jar in the fruit preserves aisle, alongside the jam jars of a better known brand—whose products are priced at $8 apiece
Store managers reason that customers are more likely to choose the store brand instead of the better-known brand when they realize the price difference. What price adjustment strategy is evident in the supermarket's reasoning? A) by-product pricing B) product bundle pricing C) captive product pricing D) psychological pricing E) seasonal pricing
Outstanding checks refer to checks that have been:
A. Written and not yet recorded in the company books. B. Held as blank checks. C. Issued by the bank. D. Written, recorded on the company books, sent to the payee, but not yet paid by the bank. E. Written, recorded, sent to payees, and received and paid by the bank.