Suppose you buy a Merck put for $2.50 which matures in September with a strike price of $50. Merck is currently trading at $51.75. If thestock price of Merck falls to $46, the rate of return of your put option is:60%10%120%70%O O O

The rate of return is the percentage profit earned on the investment and that indicates the…

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tock price of Merck falls to $46, the rate of return of your put option is 60% 10%

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 5ST

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Suppose you buy a Merck put for $2.50 which matures in September with a strike price of $50. Merck is currently trading at $51.75. If the
stock price of Merck falls to $46, the rate of return of your put option is:
60%
10%
120%
70%
O O O

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