A Stock Is Currently Trading at a Price of 22 $C ( 20 ) = 3.25$

question 21

Multiple Choice

A stock is currently trading at a price of 22. You observe the following prices for European call options on the stock (the strikes are in parentheses) : $C ( 20 ) = 3.25$ , $C ( 22 ) = 1.95$ , and $C ( 24 ) = 0.40$ . You can conclude from this that

• A) The 20-strike call is overvalued.
• B) The 24-strike call is undervalued.
• C) The prices of the calls are inconsistent with no-arbitrage.
• D) The stock is mispriced.

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Definitions:

Oculomotor

Relating to the eye's movements or the muscles and nerves controlling them, especially associated with the third cranial nerve.

Innervated

Supplied or stimulated by a nerve, or having nerves that provide sensation or movement.

Astigmatism

A common vision condition caused by an irregular curvature of the cornea or lens, leading to blurred or distorted vision at any distance.

Curvature

The state of being curved or bent, often describing the shape or contour of something, such as a line, path, or anatomical structure.