Question 3 Call Option [4 points]: Suppose you own a call option that permits you to purchase 100 shares of the stock of Silicon Graphics for $15 per share any time in the next 3 months. Silicon Graphics has a current market price of $12 per share. Ignore taxes and transaction costs.

a) Should you exercise the option and purchase the stock if its price increases to $17? What would be your gain (loss) if you exercised the option and then immediately sold the stock?

b) Should you exercise the option and purchase the stock if its price increases to $14? What would be your gain (loss) if you exercised the option and then immediately sold the stock?