A stock price (which pays no dividends) is $50 and the strike price of a two year European put option is $55. The risk-free rate is 3% (continuously compounded). If this were an American option instead of a European one, what would be the option's lower price bound? (i.e., the minimum price to eliminate arbitrage opportunities).

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SOLUTION The lowerprice boundfor an American put option is the ... View the full answer