Warner Motors' stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?

Question

Quizplus · Accepted Answer

The call option will become in-the-money as the stock price exceeds the strike price. The option's intrinsic value increases, but the increase in the option price will be less than $2. However, since the option price is initially $1.50, even a small increase will result in a percentage increase greater than 10%.

Warner Motors' Stock Is Trading at $20 a Share