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:

Critical Thinking Skill

The ability to think clearly, rationally, and independently, evaluating arguments and solving problems systematically.

Encoding

The initial process of converting information into a form that can be stored in memory.

Retrieval

The process of getting information out of memory storage to be used in response to a cue or question.

Critical Thinking Skill

The ability to analyze information objectively, evaluate arguments and evidence, and make reasoned judgments and decisions.