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Suppose you believe that Babson Co.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For
Suppose you believe that Babson Co.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For a total of $320, you can buy a 5-month call option giving you the right to buy 200 shares at a price of $27 per share. If you buy this option for $320 and Babson's stock price is $29.95 in 5 months from now right before your option expires, would you exercise your call option and what would your pre-tax net profit or loss be?
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