You have purchased a call option on Johnson & Johnson common stock. The option has an exercise price of $57.50 and J & J's stock currently trades at $58.93. The option pre- mium is $2.17 per contract. (LG 10-4)

a. Calculate your net profit on the option if J & J's stock price rises to $62.50 and you exercise the option.

b. Calculate your net profit on the option if J & J's stock price falls to $58.00 and you exercise the option.

c. If J & J's stock price falls to $58.00 show that it is more profitable to exercise than not exercise the option you have purchased.