On the OTC market there are two options available on Microsoft stock: a European put with premium of USD 2.25 and an American call option with premium of USD 0.46. Both options have strike price of USD 24 and an expiration date 3 months from now. Microsoft’s stock price is currently at USD 22 and no dividend is due during the next 6 months. Assuming that there is no arbitrage opportunity, which of the following choices is closest to the level of the continuous compounding risk-free rate:
On the OTC market there are two options available on Microsoft stock: a European put with premium of USD 2.25 and an American call option with premium of USD 0.46. Both options have strike price of USD 24 and an expiration date 3 months from now. Microsoft’s stock price is currently at USD 22 and no dividend is due during the next 6 months. Assuming that there is no arbitrage opportunity, which of the following choices is closest to the level of the continuous compounding risk-free rate: A.0.25%; B.1.76%; C.3.52%; D.Insufficient information