Homework Clinic

Social Science Clinic => Business => Finance => Topic started by: azncindy619 on Apr 25, 2021

Title: You have $10,000 to invest and you are considering buying 100 shares of Oceanic Airlines or 10 call ...
Post by: azncindy619 on Apr 25, 2021

Question 1

You are long a put option with a strike price of $100. The option expires today and the underlying security is trading at $94. If you purchased the option for $8, should you exercise the option?
◦ Yes
◦ No

Question 2

You have $10,000 to invest and you are considering buying 100 shares of Oceanic Airlines or 10 call options on the shares. The call option expires in six months, has a strike price of $100 and has a premium of $10 (per share). The stock price is currently $100. Assume that the stock price rises to $125 by the option expiry date. What is the ratio of the rate of return on the calls over the return on the stock?
◦ 1.0
◦ 2.0
◦ 4.0
◦ 6.0

Title: You have $10,000 to invest and you are considering buying 100 shares of Oceanic Airlines or 10 call ...
Post by: juwms on Apr 25, 2021

Answer 1

Yes

Answer 2

6.0