You Own a Share of Common Stock in Vibrapower, Inc

question 1

Multiple Choice

You own a share of common stock in Vibrapower, Inc., which is currently trading for $18 and will either rise to $30 or fall to $12 in one year. Assume the risk-free rate for one year is 0 percent. You also own an American put option on the stock with a strike price of $20, which expires in one year. What is the value of the put option, and what would be the net payoff from exercising the option now? (Do not round intermediate computations. Round final answer to two decimal places.)

• A) Option value: $3.33, Net payoff $2
• B) Option value: $3.33, Net payoff $6
• C) Option value: $5.33, Net payoff $2
• D) Option value: $5.33, Net payoff $6

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Definitions:

Persuasive Arguments

Statements or reasons presented with the intent to convince or persuade others to accept a particular viewpoint or action.

Compromising

Finding a middle ground or mutually acceptable solution that involves concessions from all parties involved in a conflict.

Great Arguments

Compelling and persuasive discussions or reasoning presented in support of a particular point of view.

Vivid Language

The use of descriptive and expressive words or phrases to create strong images or evoke sensory experiences in the mind of the listener or reader.