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

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Definitions:

Pharynx

A muscular tube at the back of the throat which connects the mouth to the esophagus and serves as a pathway for food and air.

Amphibian Respiration

The process by which amphibians exchange gases with their environment, utilizing skin, gills, and lungs at different life stages.

Skin And Lungs

Primary organs in animals for protective barrier and gas exchange, respectively; skin acts as a shield against environmental hazards while lungs facilitate oxygen intake and carbon dioxide expulsion.

Alveolar Walls

Thin layers of tissue that form the structure of alveoli, the tiny air sacs in the lungs where gas exchange between the air and blood takes place.