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(b) Calculate the approximate risk free rate based on an option that expires in 70 days. The bid and ask discounts on the Treasury bill
(b) Calculate the approximate risk free rate based on an option that expires in 70 days. The bid and ask discounts on the Treasury bill maturing in 70 days are 7.80 and 8.0 respectively. (6 marks) (c) A European put has an exercise price of $110 on December 5. The put expires in 45 days. Suppose the appropriate discount rate on Treasury Bills maturing in 44 days is 7.601. What is the maximum value of the European put? (8 marks)
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