The spot term structure for T-Bills
Question # 00462765
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Updated on: 01/14/2017 04:35 AM Due on: 01/14/2017
The spot term structure for T-Bills (proxy for the risk free rate) is as follows 30-Day T-Bill=7% per annum, 60-Day T-Bill=7.25% per annum, 90-Day T-Bill=7.5% per annum, 180-Day T-Bill=7.65% per annum and the 270-Day T-Bill=7.85% per annum all with continuous compounding. A stock pays $0.5 per quarter as dividends, the first dividend has just been paid and the current stock price is $50. What is the price of a 6-month At-the-Money European Put option on this stock if the volatility is 35%? Assume the year has 360 days.
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Solution: The spot term structure for T-Bills