A European call and a European put on a stock have the same strike price and time tomaturity. At 13:00 on a certain day, the price of the call is $5 and the price of the putis $6. At 13:01 news reaches the market that has no effect on the stock price orinterest rates, but increases volatilities. As a result, the price of the call changes to$5.50. Which of the following is correct?O The put price increases to $7.00O The put price increases to $6.50O It is possible that there is no effect on the put priceO The put price decreases to $5.50

Volatility of a stock the price of derivative options are directly proportional to each other.

Answered: A European call and a European put on a…

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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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 volatility. As a result the price of the call changes to $4.50. Which of the following is correct? Hint: think put-call parity O There is no effect on the put price The put price increases to $5.50 O The put price increases to $5.00 O The put price decreases to $2.50
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 $4.5 and the price of the put is $6. 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 $6.75. Which of the following is correct? Question 11Answer a. The call price increases to $5.25 b. It is possible that there is no effect on the call price c. The call price increases to $6.75 d. The call price decreases to $3.75
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Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?

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