The Current Price of a Non-Dividend Paying Stock Is $40

question 10

Multiple Choice

The current price of a non-dividend paying stock is $40. A European call option with three months maturity and strike $39 is priced at $2. The risk free rate of interest for three months is 2%. Which of the following statements is correct?

• A) The price of the call obeys no-arbitrage restrictions.
• B) It is possible to construct a risk-less arbitrage strategy to yield a gain of at least $0.81.
• C) It is possible to onstruct a risk-less arbitrage strategy to yield a gain of at least $1.00.
• D) It is possible to construct a risk-less arbitrage strategy to yield a gain of at least $1.19.

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Definitions:

Self-Indulgence

The excessive or unrestrained gratification of one's own desires, needs, or whims, often at the expense of others or one's own well-being.

Stress

A physical or emotional response to external pressures or demands that can be perceived as challenging or threatening.

Eating

The act of consuming food to provide nutritional support for the body.

Displacement

In psychology, a defense mechanism where an individual redirects emotional feelings from their original source to a substitute target.