Consider Two Call Options Written on Different Stocks

question 82

Multiple Choice

Consider two call options written on different stocks. Both call options have a strike price of $15 and expire one year from today. The first option is written on HearFour, Inc., whose current stock price is $16. One year from now, shares of HearFour will either rise to $18 or fall to $14. The second option is written on EsoOne, Inc., whose current stock price is also $16. In one year, shares of EsoOne Inc. will either rise to $22 or fall to $0. The risk-free interest rate is 0 percent. Which call option is worth more?

• A) The call option on HearFour, is worth more.
• B) The call option on EsoOne is worth more.
• C) They are both worth the same amount.
• D) There is not enough information to make a comparison.

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Definitions:

Instrumental Stage

Instrumental stage refers to a phase where actions are performed primarily for the purpose of achieving an external goal or reward, often discussed in the context of moral development.

Moral Development

The process through which individuals develop proper attitudes and behaviors toward other people in society, based on social and cultural norms, rules, and laws.

Avoid Punishment

A behavior modification strategy motivated by the desire to evade consequences or negative outcomes.

Ethics Competency

The ability to understand, analyze, and apply ethical principles and values to one's professional behavior and decision-making processes.