Suppose you buy a Merck put for $2.50 which matures in September with a strike price of $50. Merck is currently trading at $51.75. If thestock price of Merck falls to $46, the rate of return of your put option is:60%10%120%70%O O O

The rate of return is the percentage profit earned on the investment and that indicates the…

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tock price of Merck falls to $46, the rate of return of your put option is 60% 10%

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 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Suppose you buy a Merck put for $2.50 which matures in September with a strike price of $50. Merck is currently trading at $51.75. If the
stock price of Merck falls to $46, the rate of return of your put option is:
60%
10%
120%
70%
O O O

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