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:

College Graduation

A formal ceremony where students receive their academic degrees, marking the completion of their studies.

Routine Problem Solving

Routine problem solving involves addressing and resolving common or regularly occurring issues using established methods or procedures.

Low-involvement Decision Making

A consumer behavior characterized by limited research and consideration because the product is perceived as low risk.

Consumer Purchase Decision Process

Describes the stages a consumer goes through before, during, and after making a purchase, including problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase behavior.