The Price of a European Call Option on Lululemon Stock

question 53

Multiple Choice

The price of a European call option on Lululemon stock with an exercise price of $34.50 and one year to expiry is trading at $2.52.The current price of the stock is $34,and the risk-free rate is 4%.With no arbitrage,what must be the price of a European put on Lululemon with an exercise price of $34.50?

• A)$3.37
• B)$0.71
• C)$1.69
• D)$2.52
• E)$0.50

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Definitions:

Market Values

The existing selling or buying price for assets or services in the marketplace.

Discounted Payback

A capital budgeting method that calculates the time required to break even on an investment, considering the present value of future cash flows.

Payback

The period of time required to recover the cost of an investment.

Liquidity

The simplicity of transforming an asset or security into immediate cash without impacting its market value.