A Share of Stock Is Currently Priced at $20 and Will

question 42

Multiple Choice

A share of stock is currently priced at $20 and will change with equal likelihood to either $50 or $10.A call option with a $25 exercise price is available on the stock.How many shares of stock must be purchased to replicate the payoff from owning one call option?

• A)$.50 shares
• B)$.75 shares
• C)$.80 shares
• D)$1.25 shares Given the possible range of stock values, the option can range in price from $25 to $0.Then,

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Definitions:

Automated Equipment

Machinery and tools that operate independently or with minimal human intervention, often used to improve efficiency in manufacturing processes.

Financially Attractive

Describes investments, projects, or opportunities that are expected to provide a high return relative to their cost.

Annual Cash Inflow

The total amount of money received by a business or project within a year from all sources.

Equipment

Tools or machinery used for specific tasks, particularly in industries and manufacturing.