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:

Residual Value

The estimated value of an asset at the end of its useful life, often used in calculating depreciation or lease payments.

Depreciation

The purposeful spreading of the financial burden of a physical asset over its active life.

Accumulated Depreciation

The total amount of depreciation expensed over an asset's useful life, reducing its book value on the balance sheet.

Commercial Substance

A concept in accounting that indicates a transaction has caused a significant change in future cash flows.