A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $4.5 and the price of the put is $6. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $6.75. Which of the following is correct? Question 11Answer a. The call price increases to $5.25 b. It is possible that there is no effect on the call price c. The call price increases to $6.75 d. The call price decreases to $3.75
A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $4.5 and the price of the put is $6. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $6.75. Which of the following is correct? Question 11Answer a. The call price increases to $5.25 b. It is possible that there is no effect on the call price c. The call price increases to $6.75 d. The call price decreases to $3.75
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $4.5 and the price of the put is $6. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $6.75.
Which of the following is correct?
Which of the following is correct?
Question 11Answer
a.
The call price increases to $5.25
b.
It is possible that there is no effect on the call price
c.
The call price increases to $6.75
d.
The call price decreases to $3.75
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education