Suppose You Look in the Newspaper and See ABC Trading

question 97

Essay

Suppose you look in the newspaper and see ABC trading at $50 per share.Calls on ABC with one month to expiration and an exercise price of $45 are trading at $6.50 each.Puts on ABC with one month to expiration and an exercise price of $55 are trading at $3.50 each.Are these prices reasonable? Explain.(Ignore transactions costs.)

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Definitions:

Sales

The revenue generated from selling goods or services over a specific period of time.

Products

Goods or services offered by a business to consumers, often resulting from a manufacturing or production process.

Revenues

The total amount of money received by a company for goods sold or services provided during a certain time period.

Costs and Expenses

The consumption of resources or services in the production of goods or in providing services, resulting in financial outlay.