Jillian Owns an Option Which Gives Her the Right to Purchase

question 5

Multiple Choice

Jillian owns an option which gives her the right to purchase shares of WAN stock at a price of $20 a share. Currently,WAN stock is selling for $24.50. Jillian would like to profit on this stock but is not permitted to exercise her option for another two weeks. Which of the following statements apply to this situation?
I. Jillian must own a European call option.
II. Jillian must own an American put option.
III. Jillian should sell her option today if she feels the price of WAN stock will decline significantly over the next two weeks.
IV. Jillian cannot profit today from the price increase in WAN stock.

• A) I and III only
• B) II and IV only
• C) I and IV only
• D) II and III only
• E) I, III, and IV only

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Definitions:

Cash Inflows

The total amount of money being transferred into a business, typically from operations, investments, and financing activities.

Exchange Rate

The price at which one currency can be exchanged for another in the foreign exchange market.

Inflation Rate

The speed of growth in the average price level of goods and services, decreasing the effectiveness of purchasing power.

Exchange Rate

The value of one currency for the purpose of conversion to another, dictating how much one currency is worth in terms of another.