A One-Year Call Option Has a Strike Price of 50

question 36

Multiple Choice

A one-year call option has a strike price of 50, expires in 6 months, and has a price of $5.04. If the risk-free rate is 5 percent, and the current stock price is $50, what should the corresponding put be worth?

• A) $3.04
• B) $4.64
• C) $6.08
• D) $3.83
• E) $0

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Definitions:

Required Reserve Ratio

The minimum percentage of deposits that a bank must hold in reserve and not lend out.

Excess Reserves

Funds that banks hold over and above the required reserve ratio set by the central bank, often earning interest.

Checkable Deposits

Bank accounts from which individuals can deposit and withdraw money using checks, ATM transactions, and electronic payments.

Reserve Requirement

The minimum fraction of customer deposits that each bank must hold as reserves, rather than lending out, as mandated by the central bank.