Consider a Stock Priced at $30 with a Standard Deviation

question 29

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 on the transaction described in problem 1?

• A)$2,711
• B)infinity
• C)zero
• D)$3,289
• E)$3,000

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Definitions:

Henri Fayol

A French engineer and management theorist who is best known for developing a general theory of business administration and establishing the 14 principles of management.

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Universalist Approach

A belief in or approach towards applying the same rules or norms universally, without regard to cultural differences.

Functional Approach

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