For a European Put Option on an Index,the Index Level

question 11

Multiple Choice

For a European put option on an index,the index level is 1,000,the strike price is 1050,the time to maturity is six months,the risk-free rate is 4% per annum,and the dividend yield on the index is 2% per annum.How low can the option price be without there being an arbitrage opportunity?

• A) $50.00
• B) $43.11
• C) $29.21
• D) $39.16

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Definitions:

Output

The quantity of goods or services produced by a firm or industry.

Total Variable Costs

The sum of expenses that change in proportion to the activity of a business, such as costs for raw materials and labor, which vary with production volume.

Firm Produces

The process by which a business combines inputs, such as labor and capital, to create outputs, or goods and services, for consumption.

Marginal Cost

The cost associated with producing one more unit of a specific good or service, key in decision-making processes for production levels.