Question: Dear Sir or Madam, is this correct? Question : The current price of a non-dividend paying asset is $65, the riskless interest rate is 5%

Dear Sir or Madam,

is this correct?

Question: The current price of a non-dividend paying asset is $65, the riskless interest rate is 5% p.a. continuously compounded, and the option maturity is five years. What is the lower boundary for the value of a European vanilla put option with strike price of $80?

Answer:

p max ($80e^-0.05*5 - $65, 0)

p max ($62.30406265 -$65, 0)

p max - $2.695937354 -$2.70

But because it can't go beyond worthless the lower boundary is 0 not -2.7

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