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Derivatives- Options Illustration 7
AFM
Hello sir, In this problem, they have given risk free interest rate as 3.6% and a one month call. Why did we not take e^rt as e^(0.036*1/12)
Answers (1)
How will compute the 12th root of e power 3.6%? In this probelm they did not mention that 3.6% is 1 year disc rate or 1 month disc rate it is easier to assume it as rate for 1 month and solve it. These are simple problems that will not be asked in exam also in exam they will be more specific whether the rate if for a month or year. What you said is also right but it is a computation nightmare using a normal calculator
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