182.3. Assume a one-year American call option (C) and a one-year American put option (P) both have a strike price (K) of $51.00 when the price of a non-dividend-paying stock (S) is $50.00. The riskless rate is 5.0%. What are the lower bounds, respectively, of the American call and American put?

a. C >= 0, P >= 0

b. C >= 0, P >= $1.00

c. C >= $1.49, P >= 0

d. C >= $1.49, P >= $1.00<--answer

Im abit confused with the below formulas

C>=S(0) - K * exp(-rT)

P >= K - S(0)

and

S(o)-K=<C-P=<S(0)-K*exp(-rT)

When is one prefered over the other?

If i do the above question using the C-P, i end up with

-1=<C-P=<1.5

However the ans is d, which fits all

What is wrong here?C=0 and p=0 definitely fits and is the lowest

The C-P formula was used in 181.5 to calculate the lower bounds

181.5. The price of an American call on a non-dividend-paying stock is $3.00. The stock price is $40.00, the strike price is $42.00, and the expiration date is in six (6) months. The risk-free interest rate is 4.0%. What are the lower and upper bounds for the price of an American put on the same stock with the same strike price and expiration date?

a. $1.17 and $2.00

b. $2.17 and $3.33

c. $3.06 and $5.17

d. $4.17 and $5.00<--ans

a. C >= 0, P >= 0

b. C >= 0, P >= $1.00

c. C >= $1.49, P >= 0

d. C >= $1.49, P >= $1.00<--answer

Im abit confused with the below formulas

C>=S(0) - K * exp(-rT)

P >= K - S(0)

and

S(o)-K=<C-P=<S(0)-K*exp(-rT)

When is one prefered over the other?

If i do the above question using the C-P, i end up with

-1=<C-P=<1.5

However the ans is d, which fits all

What is wrong here?C=0 and p=0 definitely fits and is the lowest

The C-P formula was used in 181.5 to calculate the lower bounds

181.5. The price of an American call on a non-dividend-paying stock is $3.00. The stock price is $40.00, the strike price is $42.00, and the expiration date is in six (6) months. The risk-free interest rate is 4.0%. What are the lower and upper bounds for the price of an American put on the same stock with the same strike price and expiration date?

a. $1.17 and $2.00

b. $2.17 and $3.33

c. $3.06 and $5.17

d. $4.17 and $5.00<--ans

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