Assume That the Current Stock Price Is $50 Per Share

question 103

Essay

Assume that the current stock price is $50 per share, that call options can be purchased with an exercise price of $60 per share, that bank loans can be obtained for a 10% nominal rate, and that at expiration of the option in three months, the stock will either be valued at $30 or $70.Show that it is possible to replicate the stock payoff by borrowing and buying a call option.

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Definitions:

Resocialization

The process by which one's sense of social values, beliefs, and norms are reengineered, often deliberately, through an intense social process that may involve considerable stress or effort.

Stages of Development

This term describes the sequential phases of growth or progress in a particular area, often used in psychology, sociology, and economics to model change over time.

George Herbert Mead

An American philosopher, sociologist, and psychologist, known for his work in developing the theory of social behaviorism and symbolic interactionism.

Cognitive Development

The process through which individuals acquire and understand knowledge, including thinking, problem-solving, and decision-making capabilities.