You are an options dealer who deals in non-publicly traded options. One of your clients wants to purchase a one-year European call option on Alpha Computer Systems stock with a strike price of $20. Another dealer is willing to write a one-year European put option on Alpha Computer stock with a strike price of $20, and sell you the put option for a price of $4.00 per share. If Alpha Computer pays no dividends and is currently trading for $18 per share, and if the risk-free interest rate is 6%, what is the lowest price you can charge for the call option and still guarantee yourself a profit? $2.50 $1.632 $18.00 $4.13 None of the above.
You are an options dealer who deals in non-publicly traded options. One of your clients wants to purchase a one-year European call option on Alpha Computer Systems stock with a strike price of $20. Another dealer is willing to write a one-year European put option on Alpha Computer stock with a strike price of $20, and sell you the put option for a price of $4.00 per share. If Alpha Computer pays no dividends and is currently trading for $18 per share, and if the risk-free interest rate is 6%, what is the lowest price you can charge for the call option and still guarantee yourself a profit? $2.50 $1.632 $18.00 $4.13 None of the above.
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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You are an options dealer who deals in non-publicly traded options. One of your clients wants to purchase a one-year European call option on Alpha Computer Systems stock with a strike price of $20. Another dealer is willing to write a one-year European put option on Alpha Computer stock with a strike price of $20, and sell you the put option for a price of $4.00 per share. If Alpha Computer pays no dividends and is currently trading for $18 per share, and if the risk-free interest rate is 6%, what is the lowest price you can charge for the call option and still guarantee yourself a profit?
- $2.50
- $1.632
- $18.00
- $4.13
- None of the above.
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