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Consider European-style put options on a bond. The options expire in 60 days. The bond is...

Consider European-style put options on a bond. The options expire in 60 days. The bond is currently at $1.05 per $1 par and makes no cash payments during the life of the option. The risk-free rate is 5%. Assume that the contract is on $1 face value bonds. Calculate the lower boundary of the put, if the strike price of the put is $0.95

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Answer:

Lower boundary of the put option can be calculated using the formula max (K x e-rt - S0, 0)

=> max (0.95 x e-5% x 60/360 - 1.05, 0) = max (-0.107883772, 0) = 0

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