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:

Intangible Property

Property that is incapable of being apprehended by the senses (such as by sight or touch). Intellectual property is an example of intangible property.

Patent

A government grant giving an inventor exclusive rights to make, use, or sell an invention for a certain number of years.

Bailee

A person or entity entrusted with custody of property belonging to another.

Negligent

Failing to take proper care in doing something, leading to damage or harm to someone else.