Interest Rates Are Zero

question 18

Multiple Choice

Interest rates are zero.A European call with a strike price of $50 and a maturity of one year is worth $6.A European put with a strike price of $50 and a maturity of one year is worth $7.The current stock price is $49.Which of the following is true?

• A) The call price is high relative to the put price
• B) The put price is high relative to the call price
• C) Both the call and put must be mispriced
• D) None of the above

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Definitions:

Negligence

A failure to behave with the level of care that someone of ordinary prudence would have exercised under the same circumstances, leading to unintended harm to others.

Proximate Cause

The primary reason something occurred in law, determining liability based on the directness of the relationship between an action and a harm.

Duty of Care

A legal obligation which is imposed on an individual requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others.

Performance-based Regulation

Regulatory approach where entities are measured and rewarded based on their performance outcomes rather than adherence to prescriptive rules.