Question
1. What is a lower bound for the price of a one-month European put option on a non-dividend- paying stock when the stock price is
1. What is a lower bound for the price of a one-month European put option on a non-dividend- paying stock when the stock price is $12, the strike price is $15, and the risk-free interest rate is 6% per annum?
2. A four-month European call option on a dividend paying stock is currently selling for $7.25, the stock price is $74, the strike price is $72, and a dividend of $1.80 is expected in one month. The risk-free interest rate is 11.50% per annum for all maturities. What should be the price of a put with the same strike price and time to expiration?
3. What is the lower bound for the price of a four-month call option on a non-dividend-paying stock with the stock price is $28, the strike price is $25, and the risk-free interest rate is 8% per annum?
4.The bid price for a September Microsoft 50 strike price put to be $2.51 and the ask price to be $2.62. You choose to sell the put. What will be the gain or loss on the put
- if the price of Microsoft is $45?
- if the price of Microsoft is $50?
5. On Feb 8, 2016, the bid price for a March 45 strike price call to be $4.70 and the ask price to be $4.90. You choose to buy the call. What will be the gain or loss on the call at expiration
- if the price of Microsoft is $50.00?
- if the price of Microsoft is $45.00?
- if the price of Microsoft is $40.00?
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