tion date is in 3 months. The risk-free interest rate is 8%. The upper and lower bounds for the price of an American put on the same stock with the same strike price and expiration date is $3.00 and $2.41, respectively. Explain carefully the arbitrage opportunities if the American put price is greater tha
tion date is in 3 months. The risk-free interest rate is 8%. The upper and lower bounds for the price of an American put on the same stock with the same strike price and expiration date is $3.00 and $2.41, respectively. Explain carefully the arbitrage opportunities if the American put price is greater tha
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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The price of an American call on a non-dividend-paying stock is $4. The stock price is $31, the strike price is $30, and the expiration date is in 3 months. The risk-free interest rate is 8%. The upper and lower bounds for the price of an American put on the same stock with the same strike price and expiration date is $3.00 and $2.41, respectively.
Explain carefully the arbitrage opportunities if the American put price is greater than the calculated upper bound.
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