The Following Prices Are Available for Call and Put Options

question 40

Multiple Choice

The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares) unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-What is the profit if the stock price at expiration is at $64.75?

• A)-$971
• B)$1,475
• C)-$3,525
• D)$500
• E)none of the above

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Definitions:

Theory of Constraints

A management philosophy focused on identifying and managing bottlenecks that limit a system's performance, effectiveness, or profit potential.

Product Cost Distortion

When the actual cost of a product is inaccurately allocated, leading to misleading cost information and potentially flawed pricing decisions.

Sunk Cost

Costs that have already been incurred and cannot be recovered or changed, and should not affect future business decisions.

Differential Analysis

The process of comparing the differences in cost and revenue between different business decisions or scenarios to help in decision making.