Buying a Call Option, Investing the Present Value of the Exercise

question 43

Multiple Choice

Buying a call option, investing the present value of the exercise price in T-bills, and short selling the underlying share is the same as:

• A) Buying a call and a put
• B) Buying a put and a share
• C) Buying a put
• D) Selling a call

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Definitions:

Consumer Price Index

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.

Inflation Rate

The pace at which the overall price level for goods and services increases, diminishing the buying power.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, used to estimate inflation.

Base-Year Prices

Prices from a specific base year used to express the real value of goods and services in order to remove the effects of inflation over time.