If the Nominal Interest Rate Is 20% Per Year,how Much

question 55

Multiple Choice

If the nominal interest rate is 20% per year,how much money can an individual borrow today if she wants to repay $100 in one year?

• A)$80.00
• B)$83.33
• C)$120.00
• D)$78.00
• E) $121.00

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Definitions:

Stock Options

Contracts that give the investor the right, but not the obligation, to buy or sell a stock at a specified price before a certain date.

Traded

The act of buying or selling securities, commodities, or other financial instruments on financial markets.

Put-Call Parity

A fundamental principle in options pricing that establishes a specific relationship between the prices of European put and call options with the same strike price and expiration date.

European Put Option

A financial contract that gives the holder the right, but not the obligation, to sell an underlying asset at a specified price on the expiration date.