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

question 42

Multiple Choice

A one-year call option has a strike price of 50, expires in 6 months, and has a price of $4.74. If the risk-free rate is 3 percent, and the current stock price is $45, what should the corresponding put be worth?

• A) $12.74
• B) $10.48
• C) $5.00
• D) $9.00
• E) $8.30

---

Definitions:

Revolving Loan

A loan that provides the borrower with the ability to draw down, repay, and re-borrow funds up to a designated amount over a given period.

Prime Interest

The interest rate that commercial banks charge their most creditworthy customers, often used as a reference rate for loans.

Float

The time difference between writing a check and the actual withdrawal of funds from the bank account, or in securities trading, it's the number of shares available for trading by the general public.

Fair Value

An estimate of the price at which an asset or liability could be exchanged between knowledgeable, willing parties in an arm's length transaction.