A Call Option Has a Premium of $1

question 42

Multiple Choice

A call option has a premium of $1.95, a strike price of $45, and 3 months to expiration. The current stock price is $42.20. The stock will pay a $1.15 dividend in one month. The risk-free rate is 2.5%. What is the premium on a 3-month put with a strike price of $45? Assume the options are European style.

• A)$2.08
• B)$2.15
• C)$3.32
• D)$4.12
• E)$5.62

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Definitions:

Branch Banking

Banking operations in which a financial institution operates multiple branches, each providing banking services to customers.

Interest Rate Changes

Variations in the cost of borrowing money, often influenced by central banking policy to control inflation and economic growth.

Demand For Money

This represents the inverse relationship between the level of money balances and the price of holding money balances.

Barter Economy

An economic system in which goods or services are traded directly for other goods or services without using a medium of exchange, such as money.