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

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

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