Today,you Are Buying a One-Year Call on One Share of Webster

question 2

Multiple Choice

Today,you are buying a one-year call on one share of Webster United stock with a strike price of $40 per share and a one-year risk-free asset that pays 4 percent interest.The cost of the call is $1.85 per share and the amount invested in the risk-free asset is $38.46.What is the most you can lose on these purchases over the next year?

• A)-$1.85
• B)-$0.31
• C)$0
• D)$0.42
• E)$1.54

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Definitions:

Generalized Anxiety Disorder

A psychological disorder characterized by persistent and excessive worry about various aspects of life, not tied to any specific threat.

Dizziness

A sensation of unsteadiness or a feeling of movement within the surroundings, often leading to a loss of balance.

Heart Palpitations

A feeling that your heart is beating too hard or too fast, skipping a beat, or fluttering, often caused by stress, exercise, or medication.

Continually Agitated

Persistently in a state of nervousness or unrest, often without a pause.