Exhibit 22 $$\begin{array} { l c c } \text { Strike Price } & \text { Put Price } & \text { Call Price } \\\hline \$ 22.50 & \$ 2.65 & \$ 1.85\end{array}$$

question 27

Multiple Choice

Exhibit 22.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for a common stock $$\begin{array} { l c c } \text { Strike Price } & \text { Put Price } & \text { Call Price } \\\hline \$ 22.50 & \$ 2.65 & \$ 1.85\end{array}$$
-Refer to Exhibit 22.8. Calculate the payoff of a long straddle at an expiration stock price of $20.

• A)-$4.50
• B)-$2.00
• C)$2.00
• D)$4.50
• E)$20.50

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Definitions:

Normal Goods

Goods for which demand increases as the income of consumers increases.

GDP

Gross Domestic Product refers to the sum total of all monetary values of final goods and services produced within the geographical confines of a country during a given time frame.

Income Effect

The change in an individual’s or economy’s income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with less expensive ones.