Suppose a Stock Can Be Purchased for $8, a Put

question 56

Multiple Choice

Suppose a stock can be purchased for $8, a put option on the stock can be purchased for $1.50, and a call option on the stock can be written (i.e., sold) for $1.00. If holding these positions in combination can guarantee a payoff of $10 at the end of the year, then what must be the risk-free rate if no arbitrage opportunities exist?

• A) 12.50%.
• B) 5.50%.
• C) 17.65%.
• D) 33.33%.
• E) 18.75%.

---

Definitions:

Productive

The effectiveness and efficiency in generating outcomes or results.

Norm Of Reciprocity

A social rule that suggests people should return favors and positive gestures with similar actions, fostering mutual cooperation and support.

Interest

The feeling of wanting to know or learn about something or someone.

Formal Leadership

Leadership that is officially sanctioned by an organization and comes with designated authority and responsibilities.