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LOS h: Calculate and interpret the lowest prices of European and American calls and puts based on the rules for minimum values and lower bounds. ffice ffice" />
Q1. Consider a call option expiring in 60 days on a non-dividend-paying stock trading at 53 when the risk-free rate is 5%. The lower bound for a call option with an exercise price of 50 is:
A) $0.
B) $3.40.
C) $3.00.
Correct answer is B)
53 ? 50/(1.05)60/365 = 3.40.
Q2. Consider a put option expiring in 120 days on a non-dividend-paying stock trading at 47 when the risk-free rate is 5%. What are the lower bounds for an American put and a European put with exercise prices of 50?
American Put European Put
A) $3.00 $2.20
B) $2.20 $2.20
C) $3.00 $3.00
Correct answer is A)
An American put can be exercised immediately for a $3 gain, the European put cannot be exercised until expiration so its minimum value is 50 / (1.05)120/365 ? 47 = $2.20.
Q3. Consider a call option expiring in 110 days on a non-dividend-paying stock trading at 27 when the risk-free rate is 6%. The lower bound for a call option with an exercise price of 25 is:
A) $2.44.
B) $2.00.
C) $1.97.
Correct answer is A)
27 - 25/(1.06)110/365 = 2.435.
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发表于 2009-3-2 10:50
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