The Current Price of a Stock Is $50, the Annual

question 11

Multiple Choice

The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20.What is the value of a put option, assuming the same strike price and expiration date as for the call option?

• A) $7.33
• B) $7.71
• C) $8.12
• D) $8.55
• E) $9.00

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Definitions:

Signaling Effect

The signaling effect is a theory in finance suggesting that the actions of a company, such as dividend announcements or share buybacks, send signals to the market about its future prospects.

Dividend Policy

A company's approach to distributing profits to its shareholders, determining how much to pay out in dividends and how often.

Investor Confidence

The degree of faith that investors have in the stability and profitability of the financial markets, influencing their willingness to invest.

Clientele Effect

A theory suggesting that the stock price movements are influenced by the preferences of a company's current shareholder base.