Suppose a share has a flat fundamental value of $7. Currently the share is trading at $17.50 per share. You enter into a contract with another trader that once the last trading period ends you will sell 100 shares to this other trader for $10.50 per share. You are anticipating making at least $250 profit.
A) You anticipate that the market price will definitely crash to the fundamental value by the last trading period.
B) You anticipate that the market price will definitely crash to a price of $10.50 per share by the last trading period.
C) You anticipate that the market price will definitely crash to a price of no greater than $8 per share by the last trading period.
D) You anticipate that the market price will reach $13 per share by the last trading period.

Question

Quizplus · Accepted Answer

To make at least $250 profit, you need to buy the shares at a price lower than $10.50. If you buy at $8 per share, you will spend $800 and sell for $1050, making a $250 profit.

Suppose a Share Has a Flat Fundamental Value of $7