An investor purchased a call option that allows her to purchase 100 shares of Dell Computer common stock for $45 per share any time during the next six months.The current market price of Dell's stock is $42.50.If the price of Dell increases to $50 and the investor decides to exercise it,what will be the gain or loss that results from the exercise? Ignore taxes and commissions.
A) $500 gain
B) $250 loss
C) $750 gain
D) $250 gain
E) None of the above.

Question

Quizplus · Accepted Answer

The gain from exercising the option is calculated by taking the difference between the market price ($50) and the strike price ($45), which is $5 per share. Since the option covers 100 shares, the total gain is $5 * 100 = $500.

An Investor Purchased a Call Option That Allows Her to Purchase