The Current Price of a Stock Is $50

question 24

Multiple Choice

The current price of a stock is $50. Every month, the stock price will rise by a factor of 1.2 or fall by a factor of 0.8; and a $1 risk-free investment will be worth $1.03. Dividends are paid as a proportion of the stock price. Which of the following $51-strike, six-month options has the highest value?

• A) An American put when the stock pays no dividends.
• B) A European put when the stock pays dividends at proportion 0.01 of the stock price.
• C) An American call when the stock pays no dividends.
• D) A European call when the stock pays dividends at proportion 0.01 of the stock price.

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Definitions:

Owner's Equity Statement

A financial document that shows changes in the equity interest of a business's owner(s) over a specific period.

Service Revenue

Income earned by a company for the services it provides to customers.

Salaries Payable

This refers to the amounts due to employees for services rendered that have not yet been paid at the end of an accounting period.

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues, expenses, and profits.