A European Call and a European Put on a Stock

question 2

Multiple Choice

A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the call changes to $4.50. Which of the following is correct?

• A) The put price increases to $6.00
• B) The put price decreases to $2.00
• C) The put price increases to $5.50
• D) It is possible that there is no effect on the price

---

Definitions:

Behaviors

The actions or reactions of an individual or group in response to external or internal stimuli.

Recognizing Category

The process of identifying or acknowledging the existence of a specific group or classification within a larger context.

Giving Praise

The act of expressing approval or admiration to recognize someone's effort or achievement.

Showing Appreciation

The act of recognizing and valuing the efforts and contributions of others, enhancing motivation and morale.