12. A trader buys a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same maturity. What is the payoff on the exercise date if the share price is $38? Select one: a. zero b. $2 c. $3 d. $5

12. A trader buys a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same maturity. What is the payoff on the exercise date if the share price is $38? Select one: a. zero b. $2 c. $3 d. $5

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 1P

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

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12. A trader buys a call option with a strike price of $45 and a put option with a strike price of $40. Both options have the same
maturity. What is the payoff on the exercise date if the share price is $38?
Select one:
a. zero
b. $2
c. $3
d. $5

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