Consider a Stock Priced at $30 with a Standard Deviation

question 29

Multiple Choice

Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options) . Use this information to answer questions 1 through 10.
-What is the maximum profit on the transaction described in problem 1?

• A)$2,711
• B)infinity
• C)zero
• D)$3,289
• E)$3,000

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Definitions:

Feature Creep

The tendency for products to become overly complex due to the continuous adding of features, often compromising usability and functionality.

Inert Set

A group of brands that a consumer is aware of but is indifferent towards when making a purchase decision.

Brand Choices

The decision process and factors influencing why consumers prefer one brand over others within a product category.

Internal Search

The cognitive process by which individuals recall information from memory, such as past experiences or knowledge, as part of the decision-making process.