Consider a Stock Priced at $30 with a Standard Deviation

question 11

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.
-Suppose the investor constructed a covered call.At expiration the stock price is $27.What is the investor's profit?

• A)$589
• B)$289
• C)$2,989
• D)$2,711
• E)none of the above

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Definitions:

Accrued Interest

The interest on a loan or bond that has accumulated since the principal investment, or since the last interest payment, if there has been one.

Daily Balance

A method of calculating interest where the amount owed or due is recalculated each day, based on the balance of the account at the end of each day.

Borrowed

Refers to money or goods taken on loan with the obligation to return it or pay it back, usually with interest, within a specified period.

Amount Owed

The total sum of money that is due or required to be paid to another party.