Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European. Assume that all transactions consist of 100 shares or one contract (100 options). Use this information to answer questions 1 through 10.
-What is your profit if you buy a call,hold it to expiration and the stock price at expiration is $37?
A)$700
B)-$289
C)$2,711
D)$411
E)none of the above

Question

Quizplus · Accepted Answer

The profit from buying a call option is calculated as the final stock price minus the exercise price, minus the cost of the option, all multiplied by the number of shares per contract. Here, the profit is ($37 - $30 - $2.89) * 100 = $411.

Consider a Stock Priced at $30 with a Standard Deviation