Assume That the Stock of EffeUn, Inc

question 56

Multiple Choice

Assume that the stock of EffeUn, Inc. is currently trading for $16 and will either rise to $18 or fall to $12 in one year. The risk-free rate for one year is 1 percent. What is the value of a put option with a strike price of $10?

• A) $0
• B) $2.00
• C) $2.33
• D) $5.00

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Definitions:

Consolidated Balance Sheet

A consolidated financial report that shows the assets, liabilities, and shareholders' equity of a parent company along with its subsidiaries as though they are one entity.

Inventory

The components, items in the process of completion, and completed products which form part of a company's assets that are available or will soon be available for sale.

Fair Value

The estimated price at which an asset or liability could be traded in an orderly transaction between market participants at the measurement date.