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(4) Suppose European call and put options that expire in 4 months are offered today, each on one share of stock valued at $40 per
(4) Suppose European call and put options that expire in 4 months are offered today, each on one share of stock valued at $40 per share today and each with a strike price of $20. (a) Assuming that the premium on the call is $17 and the premium on the put is $9, what is the implied interest rate? (b) What is the implied interest rate if the premium on the call is $20 and the premium on the put is $6? (c) What happens to the implied interest rate as the premium on the call and the premium on the put simultaneously approach $40 and the lower bound for European puts indicated on page 7 of the Option Pricing Excerpts pdf, respectively
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