Assume that a $60 strike call pays a 1.0% continuous dividend,r = 0.05,σ = 0.28,and the stock price is $62.00.What is the profit or loss per share if on a long call position,with 73 days until expiration,the price immediately rises to $63.00?
A) $0.68 gain
B) $0.68 loss
C) $0.88 gain
D) $0.88 loss

Question

Quizplus · Accepted Answer

The intrinsic value of the call option when the stock price rises to $63 is $3 ($63 - $60). The present value of the dividend is negligible over 73 days. The profit is the intrinsic value minus the initial cost of the option, which is calculated using the Black-Scholes model. Given the parameters, the option's price is approximately $2.32, leading to a profit of $0.68 per share ($3 - $2.32).

Assume That a $60 Strike Call Pays a 1