Consider a four-month european put option on a, Ask an Expert

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Consider a four-month European put option on a non-dividend-paying stock when price is $55, the strike price is $60, and the risk-free interest rate is 12% per annume?

a) What is the lower bound for the price of this European put option

b) you check the market and see that the put option is trading at $1.5. IS there an arbitrage opportunity?

If yes, state the action you need to take today to exploit this arbitrage opportunity.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92167386

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