The Current Market Price of a Share of AT&T Stock

question 94

Multiple Choice

The current market price of a share of AT&T stock is $50. If a call option on this stock has a strike price of $45, the call

• A) is out of the money.
• B) is in the money.
• C) sells for a higher price than if the market price of AT&T stock is $40.
• D) is out of the money and sells for a higher price than if the market price of AT&T stock is $40.
• E) is in the money and sells for a higher price than if the market price of AT&T stock is $40.

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Definitions:

Company-specific Risk

A type of risk that affects a specific company or industry, distinguished from market-wide risk.

Risk-free Rate

The theoretical rate of return of an investment with zero risk, often represented by the yield on government bonds.

Market Risk Premium

The extra return over the risk-free rate that investors require to hold a risky market portfolio.

Beta

A measure of a stock's volatility in relation to the overall market; often used as a gauge of an asset's risk.