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Both a call and a put currently are traded on stock XYZ; both have strike prices of $45 and expirations of 6 months.

a. What will be the profit to an investor who buys the call for $4 in the following scenarios for stock prices in 6 months?
(i) $40; (ii) $45; (iii) $50; (iv) $55; (v) $60.

Stock Price Profit
a. $40 $_____
b. $45 $_____
c. $50 $_____
d. $55 $_____
e. $60 $_____

b. What will be the profit to an investor who buys the call of $6.5 in the following scenarios for stock prices in 6 months? (a)$40; (b)$45; (c)$50; (d)$55; (e)$60.

Stock Price Profit
a. $40 $_____
b. $45 $_____
c. $50 $_____
d. $55 $_____
e. $60 $_____

Respuesta :

Answer:

a. Profit to an investor who buys call for $4

a. $ -4

b. $ -4

c. $ -4

d. $ 1

e. $ 6

b. Profit to an investor who buys call for $6.5

a. $1.5

b. $6.5

c. $ -1.5

d. $ -3.5

e. $ -8.5

Explanation:

The call option is a derivative in which an investor buys an option to buy the asset at a certain price. The value of the call option is determined by maturity. The buyer of call option can buy an asset at a strike price before expiration date.

If the investor buys the call option for $4 then the $4 is an expense for the investor. The value of call will be -4 unless the stock price is above $50.  

If the investor buys the call option for $6.5 then the $6.5 is an expense for the investor. The value of call will be -6.5 unless the stock price is below $50.  

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