Which one of the following statements is correct? (a) Value of put + present value of exercise
Question:
Which one of the following statements is correct?
(a) Value of put + present value of exercise price = value of call + share price.
(b) Value of put + share price = value of call + present value of exercise price.
(c) Value of put - share price = present value of exercise price - value of call.
(d) Value of put + value of call = share price - present value of exercise price. The correct statement equates the value of two investment strategies. Plot the payoffs to each strategy as a function of the stock price. Show that the two strategies give identical payoffs.
Step by Step Answer:
Statement b is correct The appropriate diagrams are in Figure in the text ...View the full answer
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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