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The following information is available about two options, A and B. 1. Option A is a one-year American Call with strike 55. 2 Option B is a one-year European Put with strike price 45. 3. Both options are based on the same underlying asset, a non-dividend paying stock. 4. Both options come into effect at the same time and expire at t = 1. The following information is also available about the share price: 1. The initial value of the share is 50. 2. The value of the stock at maturity is also 50. 3. The minimum value of the action (from t = 0 to t = 1) is 46. 4. The maximum value of the action (from t = 0 to t = 1) is 58. Determine which of the following statements is true. Support your answer. a) Both options A and B are "At - The-Money" at the expiration date. b) Both options A and B are "In-The-Money" at the expiration date. c) Both options A and B are "Out-Of-The-Money" throughout the entire period. d) Only option A is "In-The-Money" at any time during the period. e) Only option B is "In-The-Money" at any time during the period.

The following information is available about two options, A and B. 1. Option A is a one-year American Call with strike 55. 2 Option B is a one-year European Put with strike price 45. 3. Both options are based on the same underlying asset, a non-dividend paying stock. 4. Both options come into effect at the same time and expire at t = 1. The following information is also available about the share price: 1. The initial value of the share is 50. 2. The value of the stock at maturity is also 50. 3. The minimum value of the action (from t = 0 to t = 1) is 46. 4. The maximum value of the action (from t = 0 to t = 1) is 58. Determine which of the following statements is true. Support your answer. a) Both options A and B are "At - The-Money" at the expiration date. b) Both options A and B are "In-The-Money" at the expiration date. c) Both options A and B are "Out-Of-The-Money" throughout the entire period. d) Only option A is "In-The-Money" at any time during the period. e) Only option B is "In-The-Money" at any time during the period.

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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The following information is available about two options, A and B. 1. Option A is a one-year American Call with strike 55. 2 Option B is a one-year European Put with strike price 45. 3. Both options are based on the same underlying asset, a non-dividend paying stock. 4. Both options come into effect at the same time and expire at t = 1. The following information is also available about the share price: 1. The initial value of the share is 50. 2. The value of the stock at maturity is also 50. 3. The minimum value of the action (from t = 0 to t = 1) is 46. 4. The maximum value of the action (from t = 0 to t = 1) is 58. Determine which of the following statements is true. Support your answer. a) Both options A and B are "At - The-Money" at the expiration date. b) Both options A and B are "In-The-Money" at the expiration date. c) Both options A and B are "Out-Of-The-Money" throughout the entire period. d) Only option A is "In-The-Money" at any time during the period. e) Only option B is "In-The-Money" at any time during the period.
Transcribed Image Text:The following information is available about two options, A and B. 1. Option A is a one-year American Call with strike 55. 2 Option B is a one-year European Put with strike price 45. 3. Both options are based on the same underlying asset, a non-dividend paying stock. 4. Both options come into effect at the same time and expire at t = 1. The following information is also available about the share price: 1. The initial value of the share is 50. 2. The value of the stock at maturity is also 50. 3. The minimum value of the action (from t = 0 to t = 1) is 46. 4. The maximum value of the action (from t = 0 to t = 1) is 58. Determine which of the following statements is true. Support your answer. a) Both options A and B are "At - The-Money" at the expiration date. b) Both options A and B are "In-The-Money" at the expiration date. c) Both options A and B are "Out-Of-The-Money" throughout the entire period. d) Only option A is "In-The-Money" at any time during the period. e) Only option B is "In-The-Money" at any time during the period.
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