Consider a Stock Priced at $30 with a Standard Deviation

question 38

Multiple Choice

Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options) . Use this information to answer questions 1 through 10.
-What is the maximum profit that the writer of a call can make?

• A)$2,711
• B)$289
• C)$3,000
• D)$3,289
• E)none of the above

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Definitions:

Partnership

An agreement by two or more persons to carry on, as co-owners, a business for profit.

Franchise

A business model that allows individuals or entities to operate a business using the branding and operational model of an established company.

Sole Proprietorship

A type of business entity owned and operated by one individual, with no legal distinction between the owner and the business.

Organizational Flexibility

The ability of a company or organization to adapt quickly to changes in its environment, including market trends, technologies, and internal dynamics.