A Call Option with 2 Months to Expiration Currently Sells

question 128

Multiple Choice

A call option with 2 months to expiration currently sells for $3.80. A put option with the same expiration sells for $1.30. The options are European style. The risk-free rate is 5 percent and the strike price of both options is $62.50. What is the current stock price?

• A) $60.70
• B) $72.07
• C) $67.16
• D) $64.49
• E) $70.23

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Definitions:

Monopolist

An individual or company that possesses exclusive control over the supply or trade of a commodity or service.

Unregulated Monopolist

A monopoly that operates without government regulation, potentially leading to unfair pricing and poor service.

Market Efficiency

A condition where all available information is already reflected in asset prices, and it's impossible to achieve consistently higher returns.

Competitive Price-Taker

A market participant that accepts prevailing market prices without having the influence to alter them, typically due to the presence of numerous sellers and buyers.