Suppose an Investor Buys One Share of Stock and a Put

question 38

Multiple Choice

Suppose an investor buys one share of stock and a put option on the stock and simultaneously sells a call option on the stock with the same exercise price. What will be the value of his investment on the final exercise date?

• A)Above the exercise price if the stock price rises and below the exercise price if it falls
• B)Equal to the exercise price regardless of the stock price
• C)Equal to zero regardless of the stock price
• D)Below the exercise price if the stock price rises and above if it falls

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Definitions:

Human Relations School

An approach to management and organizational theory that emphasizes the importance of human needs in the workplace and the key role of social interactions in employee satisfaction and productivity.

Primary Labor Market

Is composed mainly of highly skilled or well-educated white males. They are employed in large corporations that enjoy high levels of capital investment. In the primary labor market, employment is secure, earnings are high, and fringe benefits are generous.

Highly Skilled

Possessing advanced levels of expertise, training, or education in a specific field or activity.