A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $4.50. Which of the following is correct? Question 4Answer a. The call price decreases to $2.50 b. It is possible that there is no effect on the call price c. The call price increases to $3.50 d. The call price increases to $4.50
A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $4.50. Which of the following is correct? Question 4Answer a. The call price decreases to $2.50 b. It is possible that there is no effect on the call price c. The call price increases to $3.50 d. The call price increases to $4.50
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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Question
A European call and a European put on a stock have the same strike price and time to maturity. At 10:00am on a certain day, the price of the call is $3 and the price of the put is $4. At 10:01am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the put changes to $4.50. Which of the following is correct?
Question 4Answer
a.
The call price decreases to $2.50
b.
It is possible that there is no effect on the call price
c.
The call price increases to $3.50
d.
The call price increases to $4.50
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