Refer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a September expiration call option on 500 shares with the exercise price of $140.

a-1. If the stock price in September is $141, will you exercise your call? Yes

a-2. What is the net profit/loss on your position? Net Loss 495

a-3. What is the rate of return on your position? Rate of Return

b-1. Would you exercise the call if you had bought the Septembercall with the exercise price $130? Yes

b-2. What is the net profit/loss on your position? Yes

b-3. What is the rate of return on your position? Rate of Return %

c-1. What if you had bought an Septemberput with exercise price $140 instead? Would you exercise the put at a stock price of $140? No

c-2. What is the rate of return on your position?

Note: Microsoft stock price on this day was $137.49. Source: Compiled from data downloaded from Yahoo! Finance