Consider a situation in which both European call options and European put options, with varying...
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Consider a situation in which both European call options and European put options, with varying maturities up to one year, trade on an underlying stock that has a current price of $40. The options all have an exercise price of $70, and the risk-free rate is 6% per annum. Which of the following statements will be TRUE?
A. The lower bound price of the call options is zero.
B. The lower bound price of the put options is $30.
C. Put options with more time to expiration will sell for higher prices.
D. Statements A, B and C are all true.
Prior to expiration, an American put option on a stock:
A. is bounded by S0 - X/(1+r)T . B. will sell for its intrinsic value, i.e. for MAX(0,X S0) C. will never sell for less than its intrinsic value. D. can never sell for more than its intrinsic value.
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