1. Question 79

   1 Point

   For the next 2 questions suppose the following data:

   Consider a stock priced at $30 with a standard deviation of .3. The risk-free rate is .05. There are put and call options available at exercise prices of $25 and a time to expiration of one month. The calls are priced at $7 and the puts cost $1. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options).

   Suppose the investor constructed a covered call. At expiration the stock price is $27. What is the investor's profit?

   1. -100

   2. 100

   3. 200

   4. 300

2. Question 80

   1 Point

   What is the breakeven stock price at expiration for the transaction described in the previous question?

   1. $20

   2. $23

   3. $25

   4. $30