The Following Is a Listing of Option Prices on Perdida

question 106

Essay

The following is a listing of option prices on Perdida Enterprises on December 12,2002:

The current stock price is 45.75,and the riskless rate is 7%.
a. Consider the following position: sell one January 40 call; buy two January 45 calls; sell one January 50 call. Evaluate the net cash flows on this position at expiration for different stock prices, and draw a payoff diagram.
b. Are the three January put options correctly priced relative to the corresponding call options? (Assume that there are 42 days on the January option.)

---

Definitions:

Reproductive Success

The success an individual has in passing its genes to the next generation, often measured by the number of offspring that survive to reproduce.

Heritable Variation

Differences in genetic information that are passed from parents to offspring through reproduction, contributing to genetic diversity within a population.

Allopatric Speciation

Model that proposes that new species arise due to an interruption of gene flow between populations that are separated geographically.

Geographic Separation

The physical separation of populations by geographic barriers that lead to the formation of distinct species over time.