conceptSM_ch23

conceptSM_ch23 - CONCEPT QUESTIONS - CHAPTER 23 23.2 What...

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CONCEPT QUESTIONS - CHAPTER 23 23.2 What is a call option? A call option is a contract that gives the owner the right to buy an asset at a fixed price within a certain time period. How is a call option's price related to the underlying stock price at the expiration date? If the stock is "in the money" (above the striking price), stock price and option price are linearly related. If it's "out of the money", the call option is worthless. 23.3 What is a put option? A put option is a contract that gives the owner the right to sell an asset at a fixed price within a certain time period. How is a put option related to the underlying stock price at expiration date? If the stock is "in the money" (below the striking price), stock price and option price are linearly related. If it's "out of the money", the put option is worthless. 23.6 What is a put-call parity? The theorem says that because a call's payoff is the same as payoffs from a combination of buying a put, buying the underlying stock and borrowing at the risk-free rate, the call and the combination should be equally priced. 23.7
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conceptSM_ch23 - CONCEPT QUESTIONS - CHAPTER 23 23.2 What...

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