A Put Option Has a Price of $2 $0$

question 7

Multiple Choice

A put option has a price of $2.50 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) \( 2.50 \)

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Definitions:

Original Cost

The initial monetary value of an asset or investment, reflecting the purchase price or production cost before adjustments like depreciation or amortization.

Gain on Sale

Profit realized from the sale of assets or investments when the selling price exceeds the book value.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenues.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board that is becoming the global standard for the preparation of public company financial statements.