A Share of Stock Is Currently Priced at $20 and Will

question 92

Multiple Choice

A share of stock is currently priced at $20 and will change with equal likelihood to either $40 or $10.A call option with a $20 exercise price is available on the stock.The interest rate is zero.Which of the following positions will provide (approximately) the same payoffs as the option?

• A) Buy 0.667 shares and lend $6.67
• B) Buy 0.667 shares and borrow $6.67
• C) Buy 0.5 shares
• D) Sell 0.667 shares and borrow $0.667

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Definitions:

Management Traits

Characteristics or qualities that are commonly observed in effective and successful managers, such as leadership, decision-making, and communication skills.

High Concern

A significant level of interest or worry about a particular issue or outcome.

Human Relations Style

An approach to management and interpersonal interactions that emphasizes good personal relationships, understanding, and mutual respect among employees.

Authority-obedience

A management style focused on clear hierarchy and strict adherence to rules and commands, often at the expense of personal autonomy.