Today, You Are Buying a One-Year Call on SLO Stock

question 17

Multiple Choice

Today, you are buying a one-year call on SLO stock with a strike price of $50 along with a one-year risk-free asset that pays 4 percent interest. The cost of the call is $3.20 and the amount invested in
The risk-free asset is $48.08. What is the most you can lose over the next year?

• A) -$3.33
• B) -$3.20
• C) -$3.08
• D) -$1.28
• E) -$0.72

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Definitions:

Fallacy of Composition

Erroneous view that what is true for the individual (or the part) will also be true for the group (or the whole).

Association

An organization or group of individuals who voluntarily come together to achieve common goals, often representing a profession, industry, or interest.

Causation

The relationship between cause and effect where one event or action directly leads to another event or action as a result.

Macroeconomics

The branch of economics dealing with the structure, performance, behavior, and decision-making of an economy as a whole, rather than individual markets.