Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A stock price (which pays no dividends) is $48.08 and
the strike price of a 2 year European put option is
$56.63. The risk-free rate is 4% (continuously
compounded). What is a lower bound for the option
such that there are arbitrage opportunities if the price is
below the lower bound and no arbitrage opportunities if
it is above the lower bound? Use 2 decimal places.
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