Question
Assume that at t = 0 a stock has price S = $500 and that a call that matures at T with a strike price
Assume that at t = 0 a stock has price S = $500 and that a call that matures at T with a strike price of X = $500 has premium C = $10.
Assume at the option's maturity, t = T, that ST= $550.
Assume that at t = 0 that investor #1 buys 100 shares of stock and sells them at t = T.
Assume that at t = 0 investor #2 buys one call option on the same stock and exercises it at t = T.
What is the ROI (return on investment) for investor #2?
100%
300%
400%
200%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Management Principles and Applications
Authors: Sheridan Titman, Arthur J. Keown, John H. Martin
13th edition
134417216, 978-0134417509, 013441750X, 978-0134417219
