A European Put Option on a Certain Stock Has an Exercise

question 5

Multiple Choice

A European put option on a certain stock has an exercise price of $32.50 and expires in one month. The put option is fairly priced at $4.02 per option share. The stock itself is currently
Selling for $32.31 a share. If the annualized risk-free rate is 6.5%, what should the price of a
European call option on this stock, with the same exercise price and expiration date, be?

• A)$5.81
• B)$4.00
• C)$2.05
• D)none of the above

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Definitions:

Year-end Adjustment

Adjustments made to the books of accounts at the end of a fiscal year to reflect accurate financial information.

Uncollectible Account

Accounts receivable that cannot be collected from customers, often considered as bad debt.

Small Regular Payments

Recurring payments made on a consistent basis, often referring to installments or subscriptions of manageable amounts.

Closes Business

The process of halting operations and permanently shutting down a business entity.