Today,you are buying a one-year call on one share of Webster United stock with a strike price of $40 per share and a one-year risk-free asset that pays 4 percent interest.The cost of the call is $1.85 per share and the amount invested in the risk-free asset is $38.46.What is the most you can lose on these purchases over the next year?
A)-$1.85
B)-$0.31
C)$0
D)$0.42
E)$1.54

Question

Quizplus · Accepted Answer

Maximum loss = ($38.46 × 1.04) - $38.46 + $0 - $1.85 = -$0.31

Today,you Are Buying a One-Year Call on One Share of Webster