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Riskless interest rate

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Part 1: The current price of a non-dividend paying asset is $65, the riskless interest rate is 5% p.a. continuously compounded, and the option maturity is five years. What is the lower boundary for the value of a European vanilla put option on this asset with strike price of $80?

Part 2: Two companies have investments which pay the following rates of interest: Fixed Float Firm A 6% Libor Firm B 8% Libor + 0.5% Assume A prefers a fixed rate and B prefers a floating rate. If an intermediary charges both parties equally a 0.1% fee and any benefits are spread equally between Firm A and Firm B. If an intermediary charges both parties equally a 0.1% fee and any benefits are spread equally between Firm A and Firm B, what rates could A and B receive on their preferred interest rate? Show all working.

Reference no: EM131693524

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