A bank tries to construct a protected principal note, where it receive$100 from its clients and guarantees
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Question:
A bank tries to construct a protected principal note, where it receive$100 from its clients and guarantees to pay back $100 two years later. In this strategy, the bank first buys two-year risk-free bond and also considers buying a two-year European put option on a non-dividend-paying stock. The current stock price is $79. The risk-free interest rate is 4%.
Which of the following puts is certainly infeasible for the bank under no-arbitrage condition?
A put with the strike price of $95
B put with the strike price of $93
C put with the strike price of $91
D put with the strike price of $89
E put with the strike price of $87
F All of the above are feasible
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
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