Question

Homework #4 1-A three-month European put option on a non-dividend-paying stock is currently selling for $1.57. The stock price is $27.5 and the strike price is $30. The risk-free interest rate is 6%. a) What are the upper and lower bounds of the put option? b What are the tradesthat an arbitrageur needs to perform to proft from any mispricing?

Answer 1

eami<e' Com Po price clou. , whid uJhanbitn 30_-37.S 2 05665 12 uppen bound i 0+R%)

30 .015 _anbi tchive Comin 27.52.066.1S H, we-havtー&ludak..inant boum dini, should fall :bin there tuo..''. е Bice uf o - 1,57 ence Cnbae Mini i2.ry3o at Ke 6<

βυ4. Stock at 22.5 Banaue PVa a.atR 29 ssc + ST Sr erens onnow -30 闇。슥