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1. The price of a four-month GE call option with an exercise price of $35 is $6. The current price of GE stock is $40

1. The price of a four-month GE call option with an exercise price of $35 is $6. The current price of GE stock is $40 per share. The call holder exercises the call at expiration when the price of GE stock is $43. What is the payoff to the call holder?(Each contract is for 100 shares of stock)

A) $200

B) $300

C) $500

D) $800

2. Suppose that an investor believes the price of CNA stock, which is currently $50 per share, will increase substantially in the next six months. Six-month CNA call options with an exercise price of $50 are selling at a premium of $5. The investor has $5,000 to invest. Which one of the following strategies would be most profitable if the investor's expectations are accurate?

A) Invest $5,000 in CNA stock

B) Invest $5,000 in CNA stock and write covered calls

C) Invest $5,000 in six-month CNA calls

D) Invest $2,500 in CNA stock and $2,500 in six-month CNA calls

3. A three-month HP put option with an exercise price of $60 sells for a premium of $8. The put is in the money only if the price of HP stock is ______________.

A) greater than $68 per share

B) greater than $60 per share

C) less than $60 per share

D) less than $52 per share

4. The price of a two-month AT&T put option with an exercise price of $45 is $7. The current price of AT&T stock is $40 per share. The put holder exercises the put at expiration when the price of AT&T stock is $35. What is the profit per share to the put holder?

A) $2

B) $3

C) $10

D) $12

5. You just purchased a three-month BP call option (exercise price $75) and a three-month BP put option (exercise price $75). The call premium is $6 and the put premium is $2. Your maximum potential loss from this position is ______________. (Assume each contract is for 100 shares of stock)

A) $200

B) $600

C) $800

D) unlimited

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