Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05....

Question:

Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options). What is the breakeven stock price at expiration on the transaction described in problem 1? a. $32.89 b. $30.00 c. $27.11 d. $32.15 e. there is no breakeven

Exercise price:

Exercise price is also referred as strike price. The price is fixed, so the owner of the option can sell or buy the commodity or the underlying security.

Answer and Explanation:

Break even stock price is the price at which the call buyer will indifferent between the two options of buying the share from the market or buying...

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Options & Capital Budgeting: Timing, Strategy & Planning
Options & Capital Budgeting: Timing, Strategy & Planning

from Corporate Finance: Help & Review

Chapter 3 / Lesson 16
162

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