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Company ABC's stock is currently trading at $22 and is forecast to either increase by 20% or fall by 15% in 3 months. The 3-month interest rate is 1.5%. Assuming there is no active options market, an investor wishing to buy a call option on ABC stock with an exercise price of $20 will: a. Long 0.831 units of ABC stock and lend $15.54 b. Long 0.831 units of ABC stock and borrow $15.31 c. Long 1.203 units of ABC stock and lend $15.31 d. Long 1.203 units of ABC stock and borrow $15.54 e. None of the above

Company ABC's stock is currently trading at $22 and is forecast to either increase by 20% or fall by 15% in 3 months. The 3-month interest rate is 1.5%. Assuming there is no active options market, an investor wishing to buy a call option on ABC stock with an exercise price of $20 will: a. Long 0.831 units of ABC stock and lend $15.54 b. Long 0.831 units of ABC stock and borrow $15.31 c. Long 1.203 units of ABC stock and lend $15.31 d. Long 1.203 units of ABC stock and borrow $15.54 e. None of the above

Essentials Of Investments
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
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Company ABC's stock is currently trading at $22 and is forecast to either increase by 20% or
fall by 15% in 3 months. The 3-month interest rate is 1.5%. Assuming there is no active options
market, an investor wishing to buy a call option on ABC stock with an exercise price of $20
will: 
a. Long 0.831 units of ABC stock and lend $15.54
b. Long 0.831 units of ABC stock and borrow $15.31
c. Long 1.203 units of ABC stock and lend $15.31 
d. Long 1.203 units of ABC stock and borrow $15.54
e. None of the above  

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