You have purchased a call option contract on Johnson &

Johnson common stock. The option has an exercise price of $89.00 and J & J’s stock currently trades at $90.43. The option premium is quoted at $2.17 per contract. (LG 10-4)

a. Calculate your net profit on the option contract if J & J’s stock price rises to $94.00 and you exercise the option.

b. Calculate your net profit on the option contract if J & J’s stock price falls to $89.50 and you exercise the option.

c. If J & J’s stock price falls to $89.50 show that it is more profitable to exercise than not exercise the option you have purchased.

AppendixLO1