Several Rumors Concerning Value Rite Stock Are Causing the Market

question 91

Multiple Choice

Several rumors concerning Value Rite stock are causing the market price of the stock to be quite volatile.Given this situation,you decide to buy both a one-month European $25 put and a one-month European $25 call on this stock.The call price per share is $0.60 and the put price per share is $2.10.What will be your net profit or loss on these option positions if the stock price is $18 on the day the options expire? Ignore trading costs and taxes.

• A)-$210
• B)-$150
• C)-$60
• D)$430
• E)$490

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Definitions:

Market Efficiency

A concept where prices in a market fully reflect all available information, leading to an optimal distribution of resources.

Demand Schedule

A demand schedule is a table that shows the quantity of a good or service that consumers are willing and able to purchase at various prices.

Marginal Cost

The cost of producing one additional unit of a good or service.

Markup

The gap between the purchase expense of a good or service and the price at which it's sold, represented as a percentage of the buying price.