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Grades: View Cengage xCengage C | ng.cengage.com/static/nb/ui/index.html?nbld:592602&nbNodeld;:21 5931522&elSB; MINDTAP Aplía Homework : Financial Matters: Stocks, Bonds, Futures, and Options e Due Today ac 11 59 PM PST « Back to Assignment Attempts Keep the Highest2 7. Options ApliMadCo is a biotechnology company. One of its main products is an injection medicine called Pliatris, which is administered every month during the winter to atrak infants (infants born prematurely and those born with congental heart disease) to reduce ther chance af acqurng·severe upper respiratory-aness. A single piatri, shot costs about SL000. so this product represents . major revenue itream for the company. Suppose that on December 1. 2014. AplMedCo's share price is $32.96. On December 4, 2014, FELIX reads in the papers that Japanese researchars are close to developing procedures that will eliminate a major cause of premature birth. If this research is fruitful, premature births will drop dramatically, FELIX does not own·ny AplMedCo shares at the moment. Despite ths, he pays $50 to enter inte . contract that gives him the option to sell 1.000 AplMedCo shares at $30 per share anytime before June 30, 2015. Such a contractknown as a Suppose that on June 29, 2014, ApliMedCo's share price plummets to $1 due to credible rumors that Japanese researchers have successfuly developed procedures to eliminate most premature births. FELIX exercises his contracts he buys 1,000 ApliMedCe shares at s1 per share and sells them at $30 per share. By how much does he profit from this entire transaction? $28.930 $29,000 $30,000 Grade It Now Save & Continue Contr " out saving

Explanation / Answer

In the given case, Felix has purchased the option to sell the shares at pre-determined price before a pre-determined date.

So, in this case, Felix has been granted a right but not the obligation to sell.

Such contract is termed as option contract.

So,

Such contract is known as a Options.

Calculate the cost -

Cost = Amount paid for option contract + Purchase price of 1,000 shares = $50 + ($1 * 1,000) = $1,050

Revenue = Number of shares * Selling price = 1,000 * $30 = $30,000

Profit = Revenue - Cost = $30,000 - $1,050 = $28,950

The correct answer is the option (1).

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