You Are Considering Purchasing a Put Option on a Stock

question 26

Multiple Choice

You are considering purchasing a put option on a stock with a current price of $33. The exercise price is $35, and the price of the corresponding call option is $2.25. According to the put-call parity theorem, if the risk-free rate of interest is 4% and there are 90 days until expiration, the value of the put should be ________.

• A) $2.25
• B) $3.91
• C) $4.05
• D) $5.52

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Definitions:

Federal Reserve

The central bank of the United States, responsible for monetary policy, regulation of financial institutions, and ensuring the stability of the financial system.

Liquidity Trap

An environment characterized by high savings rates and low interest rates, which renders efforts to stimulate economic growth through monetary policy ineffective.

Reserve Ratio

The Reserve Ratio is the fraction of total deposits that a bank is required to hold in reserve and not lend out, a critical tool in monetary policy used to control the money supply.

Deposit Expansion Multiplier

A ratio that measures the maximum amount of money a bank can create with a given level of reserves.