The Current Price of a Non-Dividend-Paying Stock Is $40

question 2

Multiple Choice

The current price of a non-dividend-paying stock is $40.Over the next year it is expected to rise to $42 or fall to $37.An investor buys put options with a strike price of $41.What is the value of each option? The risk-free interest rate is 2% per annum with continuous compounding.

• A) $3.93
• B) $2.93
• C) $1.93
• D) $0.93

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Definitions:

Female

Referring to the sex of an organism or individual having characteristics associated biologically and genetically with females, often in contrast to males.

Male

Refers to the biological sex that produces small, mobile gametes, typically associated with XY chromosomes in many species.

Combinations

The selection of items from a collection, such that the order of selection does not matter, often used in probability and statistics.

Distinguishable

The quality of being clearly different or distinct in character or appearance, making something recognizable or understandable.