Suppose You Look in the Newspaper and See ABC Trading

question 97

Essay

Suppose you look in the newspaper and see ABC trading at $50 per share.Calls on ABC with one month to expiration and an exercise price of $45 are trading at $6.50 each.Puts on ABC with one month to expiration and an exercise price of $55 are trading at $3.50 each.Are these prices reasonable? Explain.(Ignore transactions costs.)

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Definitions:

Junior

A term typically used to describe a third-year student in a four-year educational institution or someone with intermediate level experience in a job role.

Senior

Refers to an individual of advanced age or to a person holding a high and often authoritative position, especially in a business or academic setting.

Mean Age

The average age of the individuals in a given population or sample.

Registered Voters

Individuals who have officially enrolled on an electoral roll, making them eligible to vote in elections.