5.6. What is a lower bound for the price of a six-month call option on a non-dividend-paying stoc...
5.6. What is a lower bound for the price of a six-month call option on a non-dividend-paying stock when the stock price is $80, the strike price is $75, and the risk-free interest rate is 10% per annum?
Homework Answers
The lower bound will be
Stock price - present value of exercise price
80 - 75 / e ^ ( 10% * 6/12) = 80 - 71.34 = $8.66
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5.6. What is a lower bound for the price of a six-month call option on a non-dividend-paying stoc...
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