A call option on Michigan stock specifies an exercise price of $55. Today the st
ID: 2709731 • Letter: A
Question
A call option on Michigan stock specifies an exercise price of $55. Today the stock’s price is $54 per share. The premium on the call option is $3. Assume the option will not be exercised until maturity, if at all. Complete the following table for a speculator who purchases the call option:
Assumed Stock Price at the Time Net Profit or Loss per Share
the Call Option Is About to Expire to Be Earned by the Speculator
$50
$51
$55
$56
$59
$61
$62
Explanation / Answer
Particulars Current Pay off Pay off at Maturity
(Premium) $50 $51 $55 $56 $59 $61 $62
1 Call option at $3 Exercised No No No Yes Yes Yes Yes
strike price of $55 0 0 0 1 4 6 7
Assumed Stock Price at the Time Net Profit or Loss per Share
the Call Option Is About to Expire to Be Earned by the Speculator
$50 -$3
$51 -$3
$55 -$3
$56 -$2
$59 $1
$61 $3
$62 $4
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