A Stock Priced at $65 Has a Standard Deviation of 30

question 74

Multiple Choice

A stock priced at $65 has a standard deviation of 30%. Three month calls and puts with an exercise price of $60 are available. The calls have a premium of $7.27 and the puts cost $1.10. The risk free rate is 5%. Since the theoretical value of the put is $1.525, you believe the puts are undervalued.
-A put option has a strike price of $35 and a stock price of $38.If the call option is trading at $1.25,what is the time value embedded in the option?

• A) $0.00
• B) $0.75
• C) $1.25
• D) $3.00

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