# Question

Consider a perpetual put option with S = $50, K = $60, r = 0.06, σ = 0.40, and

δ = 0.03.

a. What is the price of the option and at what stock price should it be exercised?

b. Suppose δ = 0.04 with all other inputs the same. What happens to the price and exercise barrier? Why?

c. Suppose r = 0.07 with all other inputs the same. What happens to the price and exercise barrier? Why?

d. Suppose σ = 50% with all other inputs the same. What happens to the price and exercise barrier? Why?

δ = 0.03.

a. What is the price of the option and at what stock price should it be exercised?

b. Suppose δ = 0.04 with all other inputs the same. What happens to the price and exercise barrier? Why?

c. Suppose r = 0.07 with all other inputs the same. What happens to the price and exercise barrier? Why?

d. Suppose σ = 50% with all other inputs the same. What happens to the price and exercise barrier? Why?

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