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Ahmed holds an American call option with a 30 strike price on an equity that sells al 35.11 option sells for 5 one year before
Ahmed holds an American call option with a 30 strike price on an equity that sells al 35.11 option sells for 5 one year before expiration. Required: Compare the cash flows at expiration from: exercising the option now, and putting the 5 proceeds in a bank account until the expiration date; (4 marks) and ii. holding on to the option until expiration, selling short the equity, and placing the 35 you receive into the same bank account. (6 marks) i. Ahmed holds an American call option with a 30 strike price on an equity that sells at 35. The option sells for 5 one year before expiration. Required: Compare the cash flows at expiration from: i. exercising the option now, and putting the 5 proceeds in a bank account until the expiration date; (4 marks) and ii. holding on to the option until expiration, selling short the equity, and placing the 35 you receive into the same bank account. (6 marks)
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