You Are Evaluating a Call Option with an Exercise Price

question 236

Multiple Choice

You are evaluating a call option with an exercise price of $140. The underlying stock has possible prices of $135 or $160 when the option expires. If the risk-free rate is 6%, how many options do you need to buy along with the risk-free asset to replicate the stock?

• A) 0.80 calls
• B) 1.00 calls
• C) 1.25 calls
• D) 1.75 calls
• E) 2.25 calls

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Definitions:

Subjectively

Based on or influenced by personal feelings, tastes, or opinions.

Empirically Derived

Developed or derived from practical experience rather than theory or pure logic, typically through observation and experiment.

MMPI

Short for Minnesota Multiphasic Personality Inventory, a comprehensive psychological test used to assess personality traits and psychopathology.

Eysenck Personality Inventory

A psychological test designed to measure two dimensions of personality: introversion-extraversion and neuroticism-stability.