A Stock Is Trading at $70

question 4

Multiple Choice

A stock is trading at $70.A one-month at-the-money call option on the stock is priced at $0.10.The risk free rate of interest is 2%.Which of the following statements is most accurate?

• A)There is no arbitrage opportunity here.
• B)A risk-less arbitrage strategy is to buy the call,short the stock and lend the present value of the strike for one month.
• C)A risk-less arbitrage strategy is to short the call,buy the stock and borrow the present value of the strike for one month.
• D)There is not enough information to decide whether or not there is an arbitrage.

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Definitions:

Aggressive Models

Individuals or representations that exhibit hostile or violent behavior, which can influence others through observational learning or imitation.

Live

To be alive, to exist, or to have life; can also refer to broadcasting or performing in real-time.

Social Learning Theory

A theory that suggests people learn new behaviors and information by watching and imitating others.

Instrumental Learning Theory

A concept in psychology that emphasizes learning through the consequences of our actions, often involving rewards and punishments.