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Assume that it is now the end of December 2020. The risk-free interest rate is 10% p.a. for all maturities (continuously compounded). Entries in the

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Assume that it is now the end of December 2020. The risk-free interest rate is 10% p.a. for all maturities (continuously compounded). Entries in the table below (in italics) represent European put option prices on the stock of FGH. The current stock price of FGH is $21.00. FGH does not pay dividends. Exercise price of European Put K=$21 K=$25 K=$30 Option prices Expiry: End March Expiry: End June 2021 2021 $5.50 Not traded $5.00 Not traded Not traded $7.25 Note K=Exercise price Is this option mispriced? If so, explain WHY: Option expiring end of March 2021 with K=$25.00 (assuming the March 2021 put option with K=$21.00 is correctly priced)

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