Consider the Case of an Exchange Option in Which the Underlying

question 3

Multiple Choice

Consider the case of an exchange option in which the underlying stock is Eli Lilly and Company with a current price of $56.00 per share.The strike asset is Merck,with a per share price of $52.00.Interest rates are 5% and the 3-month call option is trading for $7.00.What is the price of the put?

• A) $3.00
• B) $4.00
• C) $7.00
• D) $11.00

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Definitions:

Nonnegotiable

Pertaining to an item or document that cannot be transferred or assigned to another party in exchange for money or goods.

Assignment

The transfer of rights, property, or obligations from one party to another, often used in contexts such as contracts, leases, and insurance policies.

Qualified Indorsement

An endowment that restricts the transfer of a negotiable instrument except under certain conditions.

Negotiability

Negotiability refers to the characteristic of a document or instrument that allows it to be transferred or assigned from one party to another, ensuring the transferee obtains certain legal rights.