Assume You Own Both a June 20 Put and a June

question 11

Multiple Choice

Assume you own both a June 20 put and a June 20 call on ALPO stock.Which one of the following statements is correct concerning your option positions? Ignore taxes and transaction costs.

• A)Both a May 20 put and a May 20 call on ALPO will have higher values than your June 20 options.
• B)An increase in the stock price will increase the value of your put and decrease the value of your call.
• C)A decrease in the stock price will decrease the value of both of your options.
• D)If put-call parity does not hold,you can profit from your positions even if ALPO stock sells for $20 a share.
• E)The time premium on your June 20 put is equal to the time premium on a July 20 put on ALPO.

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Definitions:

CIM

Computer Integrated Manufacturing, a method of manufacturing where the entire production process is controlled by computer.

MRP

Material Requirements Planning is a system employed for production planning, scheduling, and managing inventory, aimed at optimizing manufacturing processes.

CRM

Customer Relationship Management, a strategy and technology for managing a company's interactions with current and potential customers.

TPS

An information system known as the Transaction Processing System is built to accumulate, preserve, change, and access transactions data for an organization.