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:

Housing Development

The process of constructing a collection of new homes or the group of homes themselves, typically planned and built by a single developer.

Profit-Maximizing

A principle where businesses seek to achieve the highest possible profit, often by adjusting production levels, pricing strategies, or costs.

Damages

Financial compensation awarded to a plaintiff in a lawsuit for losses or injuries suffered due to another party's actions.

Entry Restrictions

Regulations or barriers that prevent new competitors from entering an industry or market, often to protect existing businesses and control market dynamics.