Tru-U Stock Is Selling for $36 a Share

question 49

Multiple Choice

Tru-U stock is selling for $36 a share. A 3-month call on Tru-U stock with a strike price of $40 is priced at $1. Risk-free assets are currently returning 0.25% per month. What is the price of a 3-month put on Tru-U stock with a strike price of $40?

• A) $2.98
• B) $3.00
• C) $4.03
• D) $4.70
• E) $4.90

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Definitions:

Liability Balances

The outstanding obligations or debts that a company owes to third parties.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities; also known as shareholders' equity.

Cash Dividend

The allocation of a part of a company's profits to its shareholders, approved by the board of directors, and typically dispensed in the form of cash.

Stock Dividend

A dividend payment made in the form of additional shares rather than a cash payout, representing a reinvestment of a company’s earnings.