Tammy Smith purchased a call option with a striking price of $40 at a price of $3.50. At expiration, the stock price has risen to $45.00. What is Tammy's return on investment?

Question

Quizplus · Accepted Answer

To calculate the return on investment, first calculate the profit by subtracting the striking price from the stock price and subtracting the initial cost of the option: ($45 - $40) - $3.50 = $1.50. Then, divide the profit by the initial cost: $1.50 ÷ $3.50 = 0.4286 or 42.86% (rounded to the nearest tenth). Therefore, the answer is D, 42.9%.

Tammy Smith Purchased a Call Option with a Striking Price