Optimal to exercise these special put option immediately

Assignment Help Financial Management

Reference no: EM132010497

For a stock, you are given:

(i) The current stock price is $50.00.

(ii) = 0.08

(iii) The continuously compounded risk-free interest rate is r = 0.04.

(iv) The prices for one-year European calls (C) under various strike prices (K) are shown

below:

k c

40 9.12

$50 $4.91

$60 $0.71

$70 $0.00

You own four special put options each with one of the strike prices listed in (iv). Each of these put options can only be exercised immediately or one year from now.

Determine the lowest strike price for which it is optimal to exercise these special put option(s) immediately.

Reference no: EM132010497

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