1. Bloomfield a nondividend paying stock is priced at $17.35 today. The current interest rate is 3.0% per year. A 3month put option with an exercise price of $20.00 is available. What is the lower bound of the price of this put option?

2. Troy's nondividend paying stock is at $47.00 and the price of a 6month European put options on the stock with an exercise price of $45.00 is $2.00. The risk-free rate is 5.0% per year. What is the price of a European Call option with similar parameters (X = $45.00 and T = 6month)?

3. Birmingham's 6month put option with an exercise price of $55.00 is selling for $2.00. This nondividend paying stock's price today is $51.30. The current interest rate is 3.50% per year. If there is an opportunity for an arbitrator, how much money can be made immediately (now or T0)?

Answer rating: 100% (QA)

1 To determine the lower bound of the price of the put option we can use the putcall parity formula Put Option Price Stock Price Call Option Price Pre... View the full answer