Exhibit 22.3 Use the Information Below for the Following Problem(S)

question 49

Multiple Choice

Exhibit 22.3
Use the Information Below for the Following Problem(S)
A stock currently trades for $130 per share. Options on the stock are available with a strike price of $125. The options expire in 10 days. The risk free rate is 3% over this time period, and the expected volatility is 0.35.
-Assume that you have just sold a stock for a loss at a price of $75,for tax purposes.You still wish to maintain exposure to the sold stock.Suppose that you buy a call with a strike price of $70 and a price of $6.75.Calculate the effective price paid to repurchase the stock if the price after 35 days is $80.

• A) $81.75
• B) $73.25
• C) $86.75
• D) $76.75
• E) None of the above

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Definitions:

Balance of Trade

The difference between a country's exports and imports of goods.

Imports

Goods or services brought into one country from another for sale or use.

Barter

The practice of exchanging products and services for other products and services rather than for money.