A One-Year European Call Option on ABX Corporation with a Strike

question 35

Multiple Choice

A one-year European call option on ABX corporation with a strike price of $50 is currently trading for $4.30,and a one-year European put option on ABX with the same strike price is currently trading for $1.47.If the stock pays no dividends and the risk free rate is 4% per year,what is the current price of ABX stock?

• A)$39.79
• B)$41.57
• C)$45.25
• D)$50.91
• E)$53.85

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Definitions:

Capital Goods

Long-lasting goods acquired or manufactured by a business that are used to produce other goods or services.

Interest Rates

The percentage charged on borrowed funds or paid on deposits over time, reflecting the cost of borrowing or the reward for saving.

Loanable Funds

The money available for borrowing and lending in the financial markets, determined by savings and investments.

Interest Rate

The percentage of a borrowed sum that the lender charges as interest to the borrower, usually specified as an annual percentage of the total loan amount.