Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You have $5,000 to invest. You are considering two investment options. You can buy a stock that trades for $50 a share. You can buy

You have $5,000 to invest. You are considering two investment options. You can buy a stock that trades for $50 a share. You can buy call options on that same stock for $1.25 with a strike price of $55. Either way, you will invest all $5,000. Use the information above to answer the following questions:

What is your percent return if you invest $5,000 in the call option and the stock price at expiration is $45?

The answer should be formatted as a number with 2 decimal places (e.g. 99.99)

Please do it in an easy-to-follow formula. Note it's for a call option

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Financial Theory

Authors: Jean-Pierre Danthine, John B. Donaldson

2nd Edition

0123693802, 978-0123693808

More Books

Students also viewed these Finance questions