The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares)unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-Suppose the investor adds a call to the long straddle,a transaction known as a strap.What will this do to the breakeven stock prices?
A)lower both the upside and downside breakevens
B)raise both the upside and downside breakevens
C)raise the upside and lower the downside breakevens
D)lower the upside and raise the downside breakevens
E)none of the above

Question

The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
  Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares)unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-Suppose the investor adds a call to the long straddle,a transaction known as a strap.What will this do to the breakeven stock prices?
A)lower both the upside and downside breakevens 
B)raise both the upside and downside breakevens 
C)raise the upside and lower the downside breakevens 
D)lower the upside and raise the downside breakevens 
E)none of the above

Quizplus · Accepted Answer

The Answer of The following prices are available for call and put options on a stock priced at $50.The risk-free rate is 6 percent and the volatility is 0.35.The March options have 90 days remaining and the June options have 180 days remaining.The Black-Scholes model was used to obtain the prices.
  Use this information to answer questions 1 through 20.Assume that each transaction consists of one contract (for 100 shares)unless otherwise indicated.
Answer questions 12 through 17 about a long straddle constructed using the June 50 options.
-Suppose the investor adds a call to the long straddle,a transaction known as a strap.What will this do to the breakeven stock prices?
A)lower both the upside and downside breakevens 
B)raise both the upside and downside breakevens 
C)raise the upside and lower the downside breakevens 
D)lower the upside and raise the downside breakevens 
E)none of the above

The Following Prices Are Available for Call and Put Options