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

Differentiate between explicit and implicit costs in short-run total cost calculations.

Apply the principle of marginal analysis to business and economic decisions.

Understand the concept of marginal cost and how it affects decision-making in production.

Grasp the concept of marginal benefit and its importance in optimizing resource allocation.

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Definitions:

Axon

The long, slender projection of a nerve cell, or neuron, that typically conducts electrical impulses away from the neuron's cell body.

Impulses

Electrical signals that travel along the nervous system, enabling communication between neurons.

Neuron

A neuron is the fundamental unit of the nervous system, tasked with conveying information across the body.

Axon

A narrow, elongated extension of a neuron, or nerve cell, that usually carries electrical signals from the cell's main body outward.