You Are Evaluating a Call Option with an Exercise Price

question 278

Multiple Choice

You are evaluating a call option with an exercise price of $140. The underlying stock has possible prices of $135 or $160 when the option expires. If the risk-free rate is 6%, how many options do you
Need to buy along with the risk-free asset to replicate the stock?

• A) 0.80 calls
• B) 1.00 calls
• C) 1.25 calls
• D) 1.75 calls
• E) 2.25 calls

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Definitions:

Synovial Membrane

The soft tissue that lines the inner surface of synovial joints, producing synovial fluid for lubrication.

Lubricating Film

A thin layer of liquid or substance applied to surfaces to minimize friction and wear, commonly found in mechanical systems, joints, and tissues.

Smooth Surface

A surface with an even and uninterrupted texture, free of noticeable bumps, ridges, or indentations.

Synovial Fluid

A viscous fluid found in the cavities of synovial joints that reduces friction between articular cartilages during movement.