A European Call Option on a Stock Has an Exercise

question 26

Multiple Choice

A European call option on a stock has an exercise price of $100 and expires in 5 months. The option is currently selling for $3.80 per option share. A European put option on the same stock
With the same exercise price and time to expiration is selling for $22.20. The stock itself is
Selling for $80.81. The annualized risk-free rate is 2.25%. According to the put-call parity
Model,

• A)the call option is underpriced relative to the put option by $0.13.
• B)the put option is overpriced relative to the call option by $0.59.
• C)the put option is overpriced relative to the call option by $0.13.
• D)the put and the call are correctly priced relative to one another, but we do not know whether either is fairly priced.

---

Definitions:

Sensorimotor Stage

The first stage in Piaget's theory of cognitive development, where infants learn about the world through their senses and motor actions.

Piaget

Refers to Jean Piaget, a Swiss psychologist known for his pioneering work in child development and his theory of cognitive development.

Cognitive Development

The formation and evolution of mental processes like recall, solving problems, and making choices, from early childhood, through the teen years, into maturity.

Egocentrism

The inability to differentiate between one's own perspective and someone else's perspective, often seen in early childhood development.