Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. 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). Use this information to answer questions 1 through 10.
-What is the maximum profit on the transaction described in problem 1?
A)$2,711
B)infinity
C)zero
D)$3,289
E)$3,000

Question

Quizplus · Accepted Answer

The maximum profit on a call option is theoretically unlimited because the stock price can rise indefinitely. Since the question does not specify the transaction in problem 1, but generally buying a call option offers potentially unlimited upside, the correct answer is infinity.

Consider a Stock Priced at $30 with a Standard Deviation