A put option has a price of $1.50,with exercise price of $14.00 and underlying asset price of $12.00.If the time to maturity is 30 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

A) $ 0$
B) $ 0.42 $
C) $ 1.67 $
D) $ 2.50 $

Question

A put option has a price of $1.50,with exercise price of $14.00 and underlying asset price of $12.00.If the time to maturity is 30 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

A) $  0$
B) $ 0.42 $
C) $ 1.67 $
D) $  2.50 $

Quizplus · Accepted Answer

The lower pricing bounds for the European put option have been breached because 1.50 < 13.92 - 12.The error is therefore 0.42.

A Put Option Has a Price of $1 0 00

A Put Option Has a Price of $1 $0$