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= = = Exercise 5.3. Suppose you pay P = 5 to buy a European put option on a given security with K = 100

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= = = Exercise 5.3. Suppose you pay P = 5 to buy a European put option on a given security with K = 100 and T = 1/2. Assume a nominal annual interest rate of r =6%, compounded monthly. Suppose that S(1/2) = 102. (a) Find the payoff V (T) of the put option. (b) Find the present value return. That is find V (T). (1 + r/12)-12T - P

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