You Would Like to Be Holding a Protective Put Position

question 49

Multiple Choice

You would like to be holding a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on Avalon Co.
-Suppose the desired put options with X = 50 were traded.How much would it cost to purchase?

• A) $1.19
• B) $2.38
• C) $5.00
• D) $3.33

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Definitions:

Suit Against

This term generally describes the initiation of legal action or litigation by one party against another.

Common Carrier

A business or service that offers to transport goods or people for anyone willing to pay, under a regulatory or legal obligation to do so without discrimination.

Delivery Contract

A legal agreement specifying the terms of delivery for goods or services from a seller to a buyer.

Goods-In-Bailment

A legal term referring to the temporary transfer of possession of personal property by one party to another, with the intent that the property will be returned.