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

question 27

Multiple Choice

A call option has a price of $2.50 with exercise price of $14.00 and underlying asset price of $15.00.If the time to maturity is 60 days and the risk-free return is 7% p.a. ,what is the pricing bounds error?

• A) \( 0 \)
• B) \( 0.50 \)
• C) \( 0.66 \)
• D) \( 1.16 \)

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Definitions:

Compounded Quarterly

The process of calculating interest and adding it to the principal sum of a deposit or loan on a quarterly basis, leading to interest on interest.

Quarterly Deposits

Deposits made into an account or investment vehicle at regular intervals every three months within a year.

Bank Account

A financial account maintained by a bank or other financial institution in which the financial transactions between the customer and the bank are recorded.

Compounded Annually

Refers to the process of calculating interest on both the initial principal and the accumulated interest from previous periods on an annual basis.