A Call Option Has an Exercise Price of $150

question 47

Multiple Choice

A call option has an exercise price of $150. At the option expiration date, the stock price could be either $100 or $200. Which investment would combine to give the same payoff as the stock?

• A)Lend PV of $100 and buy two calls.
• B)Lend PV of $100 and sell two calls.
• C)Borrow $100 and buy two calls.
• D)Borrow $100 and sell two calls.

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Definitions:

Preferences

In economics, this refers to the ordering of alternatives based on their utility, showing the subjective tastes and choices of individuals.

Complete

Fully accomplished or having all necessary parts or steps.

Transitivity

Transitivity in decision making refers to the consistency among choices, where if option A is preferred over B and B over C, then A should be preferred over C.

Indifference Curves

Graphical representations used in microeconomics to show different combinations of two goods that give a consumer equal satisfaction and utility.