A Call Option Has an Exercise Price of $150

question 47

Multiple Choice

A call option has an exercise price of $150. At the option expiration date, the stock price could be either $100 or $200. Which investment would combine to give the same payoff as the stock?

• A)Lend PV of $100 and buy two calls.
• B)Lend PV of $100 and sell two calls.
• C)Borrow $100 and buy two calls.
• D)Borrow $100 and sell two calls.

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Definitions:

Adaptive Expectations Theory

An economic theory that proposes individuals adjust their expectations for the future based on recent past experiences and events.

Certainty Equivalent Theory

An economic theory that quantifies how much risk an investor is willing to take on, expressed as the minimum guaranteed amount an investor would accept rather than take a gamble.

Theories Of Expectations

Economic theories that explore how the expectations of individuals or firms about future economic conditions affect their current decision-making and behavior.

Rational Expectations Theory

A concept suggesting that individuals make decisions based on their rational outlook, available information, and past experiences.