Today, You Are Buying a One-Year Call on One Share

question 255

Multiple Choice

Today, you are buying a one-year call on one share of XYZ stock with a strike price of $35 along with a one-year risk-free asset which pays 5 percent interest. The cost of the call is $1.60 and the
Amount invested in the risk-free asset is $33.33. How much profit will you earn if the stock has a
Market price of $37 one year from now?

• A) $2.07
• B) $2.11
• C) $2.16
• D) $2.29
• E) $2.31

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Definitions:

Unilateral Mistake

This occurs when only one party to a contract is mistaken about a fundamental fact of the contract, which can affect the enforceability of the contract.

Implied Misrepresentation

A false statement or omission made indirectly or through implication that leads others into error.

Rescind

To retract, cancel, or annul a contract or agreement, reverting the parties to their respective positions prior to the agreement.

Petition

A formal written request, often to a court or a governmental institution, seeking a particular legal remedy or governmental action.