An investor is considering buying 500 shares of ABC Company at $32 per share. Analysts agreethat the firm's stock price may increase to $45 per share in the next 4 months. As an alternative, theinvestor could purchase a 120-day call option at a striking price of $30 for $5,000. At what stock price would the investor break even?

Question

Quizplus · Accepted Answer

The investor breaks even when the total cost equals the total revenue. For buying shares, the cost is $32 per share. For the call option, the cost is $5,000 plus the $30 strike price per share. The break-even stock price is $40, where both strategies yield the same outcome.

An Investor Is Considering Buying 500 Shares of ABC Company