A Stock Is Currently Selling for $32 a Share

question 74

Multiple Choice

A stock is currently selling for $32 a share. A call option on the stock is available for $3.40 with a strike price of $30 and three months to maturity. The risk-free rate is 4% and the market rate is 11%. What is the price of a 3-month put option with the same strike and expiration? Assume the options are European style.

• A) $0.30
• B) $0.83
• C) $1.11
• D) $1.23
• E) $1.40

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Definitions:

Share

A unit of ownership in a company or financial asset that gives the holder a claim on part of the company's assets and earnings.

Transfer Agent

An entity appointed by a corporation to maintain records of investors, account balances, and transactions; to issue and cancel shares; and to handle share transfers.

Financial Institution

An establishment that conducts financial transactions such as investments, loans, and deposits.

Stockholders

Individuals or entities that own shares in a corporation, thus having an ownership stake in the business.