If a Call Is Overpriced and You Buy the Call

question 8

True/False

If a call is overpriced and you buy the call and sell short the stock,it is equivalent to investing money at less than the risk-free rate.

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Definitions:

Equity Securities

Equity Securities are financial instruments that represent ownership interest in a company, such as stocks, entitling the holder to a share of the entity's profits and assets.

Investor

An individual or entity that allocates capital with the expectation of receiving financial returns.

Long-Term Investments-AFS

These are long-term investments in 'Available for Sale Securities' that a company has, which can be sold in the future.

Debt Investments

Financial assets involving the loan of money from an investor to a borrower, often in the form of bonds or loans.