Interest Rates Are Zero

question 18

Multiple Choice

Interest rates are zero.A European call with a strike price of $50 and a maturity of one year is worth $6.A European put with a strike price of $50 and a maturity of one year is worth $7.The current stock price is $49.Which of the following is true?

• A) The call price is high relative to the put price
• B) The put price is high relative to the call price
• C) Both the call and put must be mispriced
• D) None of the above

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Definitions:

Annually

Occurring once every year.

Federal Laws

Regulations and statutes enacted by the national government of a country, which apply to all jurisdictions within that country.

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The legal system of England and Wales, which is based on common law principles.

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