Question
Suppose an investor bought a call option for $2.40 on a single share of Loud Sound Recordings Inc. with a strike price of $38.00 when
Suppose an investor bought a call option for $2.40 on a single share of Loud Sound Recordings Inc. with a strike price of $38.00 when the firm's stock traded at $39.94. The call option had one year until expiration. One year later, the stock price had increased to $41.44. The stock price had therefore increased by 3.76%, and an investor who bought the stock and held it for a year would have earned 3.76%. What return did this investor earn by buying the call option? 43.33% 34.66% 39.00% 52.00% Suppose the stock price had fallen to $37.87. In the following table, indicate the return that a stock investor would have earned by holding Loud Sound Recordings Inc.'s stock. Then indicate the return that an investor would have earned if she had bought a call option on Loud Sound Recordings Inc.'s stock.
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