1. Consider an option that expires in 72 days. The bid and ask discounts on...
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1. Consider an option that expires in 72 days. The bid and ask discounts on the T-bill are 7.44 and 7.20, respectively. Find the appropriate risk-free rate. The following option quotes are observed for XYZ stock on Jul 3. Use this table for questions 2 through 6. Current stock price is 165.13. The expirations are Jul 17, Aug 21, and Oct 16. The risk-free rates are 0.0516, 0.0550, and 0.0588, respectively. Calls Puts Strike Jul Aug Oct Jul Aug Oct 155 10.50 11.80 14.00 0.20 1.25 2.75 160 6.00 8.10 11.10 0.75 2.75 4.50 165 2.70 5.20 8.10 2.35 4.70 6.70 170 0.80 3.20 6.00 5.80 7:50 9.00 3. Compute the intrinsic values, time values, and lower bounds of the following puts. Treat these as American for purposes of determining the intrinsic values and time values and as European for the purpose of determining the lower bounds. a. July 165 b. August 160 c. October 170
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