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:

Equilibrium Price

The market price at which the quantity of goods supplied equals the quantity of goods demanded.

Minimize Losses

Minimizing losses involves implementing strategies and decisions that reduce the extent of financial loss or damage to the lowest possible level, often through risk management and careful planning.

Maximize Profits

The process by which a company seeks to achieve the highest possible financial gain from its operations and sales.

Break-even

The point at which total costs and total revenues are equal, meaning that there is no net loss or gain from the business activities.