Question:
In this unit we learned to illustrate the investment characteristics of put and call options and how they can be used to modify the risk and return characteristics of an investment portfolio. We also exami n ed the usefulness of futures contracts as investment vehicles for both hedgers and speculators, showed how interest rate differentials among the countries determine foreign currency exchange rates, and investigate how global firms use currency futures to manage foreign currency risk.
Please answer this question below
Lets extend the discussion by examining the practical implications of these concepts. A stock index is currently 300, the dividend yield on the index is 3% per annum, and the risk-free interest rate is 8% per annum.
What is a lower bound for the price of a six-month European call option on the index when the strike price is 290?