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 call changes to $4.50. Which of the following is correct? O The put price decreases to $2.50 O There is no effect on the put price The put price increases to $5.00 O The put price increases to $5.50

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
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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 call changes to $4.50.
Which of the following is correct?
O The put price decreases to $2.50
O There is no effect on the put price
O The put price increases to $5.00
O The put price increases to $5.50
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Transcribed Image Text: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 call changes to $4.50. Which of the following is correct? O The put price decreases to $2.50 O There is no effect on the put price O The put price increases to $5.00 O The put price increases to $5.50 << Previous Next ▸
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