You Can Realize the Same Value as That Derived from Stock

question 87

Multiple Choice

You can realize the same value as that derived from stock ownership if you:

• A) sell a put option and invest at the risk-free rate of return.
• B) buy a call option and write a put option on a stock and also borrow funds at the risk-free rate.
• C) sell a put and buy a call on a stock as well as invest at the risk-free rate of return.
• D) lend out funds at the risk-free rate of return and sell a put option on the stock.
• E) borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options.

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Definitions:

C-type Corporations

Standard business corporations subject to corporate income tax, distinguished by their taxation at both the corporate and shareholder levels when dividends are distributed.

Partnerships

A legal form of business operation between two or more individuals who share management and profits.

Agency Problem

A conflict of interest arising between decision-makers (agents) and the owners (principals) due to differing goals.

Managements' Compensation

The financial and non-financial rewards given to corporate management, which may include salary, bonuses, stock options, and other benefits.