A 2-Month, $20 Call Option on ABC Stock Has an Option

question 92

Multiple Choice

A 2-month, $20 call option on ABC stock has an option premium of $0.40. The 2-month, $20 put option has an option premium of $1.60. The risk-free rate of interest is 5%. The options are European style. What is the price of ABC stock?

• A) $15.23
• B) $13.46
• C) $18.64
• D) $10.79
• E) $17.41

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Definitions:

Common Stock

A type of equity security representing ownership in a corporation, with rights to vote on corporate matters and receive dividends.

Shares Outstanding

This key term represents the aggregate number of issued shares of a corporation held by investors, including restricted shares owned by the company’s officers and insiders.

Reverse Stock Split

A corporate action that reduces the number of a company's outstanding shares and increases the share price proportionately.

Shares Outstanding

The cumulative amount of shares of a company presently held by all shareholders, encompassing large quantities owned by institutional investors and private shares held by company insiders.