Consider a Stock Priced at $30 with a Standard Deviation

question 19

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 minimum profit from the transaction described in Question 6 if the position is held to expiration?

• A)-$2,711
• B)-$3,289
• C)-$3,000
• D)negative infinity
• E)none of the above

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Definitions:

Repaid

The act of paying back money that was borrowed from a person, bank, or financial institution.

Interest Rate

The ratio at which interest is applied to money loaned by a borrower from a lending party.

Compounded Semi-annually

A financial term indicating the interest on an investment is calculated and added to the principal balance twice every year, enhancing the total return over periods.

Obligation

A duty or commitment to pay money or perform some action.