Ask Question
BusinessBusiness
20 November, 14:33

The XYZ Company expects stock prices to increase. The current stock price is $37. The company purchases a call option, with an exercise price of $40 and a premium of $2 per share. Just before the expiration, stock price rises to $44. Should the investor exercise the call option or not? What will the total payoff per share be?

+4
Answers (1)
  1. 20 November, 18:18
    0
    Payoff per share = $4

    Profot pershare = $2

    Explanation:

    In a call option, the long (the party that buy the put) will have gain on the option when the underlying asset price is higher than the excercise price of that asset (imagine the advantage that you can buy an apple at $10 when its market price is $12). Because the stock price is $44, higher than exercise price of 40, so the company should exercise the call. Total payoff per share is 44 - 40 = $4 (and profit per share = 4 - 2 = $2).

    Note: We dont include premium to buy the call here because the question asking about payoff. We on include premium in calculations when the question is about profit.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “The XYZ Company expects stock prices to increase. The current stock price is $37. The company purchases a call option, with an exercise ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
At the end of its first year of operations, Alder Co. had 150,000 shares of preferred stock, 5% cumulative, $100 par value. It also has 1,000,000 shares of common stock $0.01 par value.
Answers (1)
Many large, packaged goods marketers like Procter & Gamble, Kraft, and Pillsbury have used the product manager (or brand manager) system of marketing organization and implementation. Which of the following is the key advantage of this system? A.
Answers (1)
Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has six years to maturity, whereas Bond Dave has 19 years to maturity. a.
Answers (1)
When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts? a. Raw-Material Inventory, Manufacturing Overhead, and Direct Labor. b.
Answers (1)
Roles that are concerned specifically with the activities that need to be carried out for the group to accomplish its goals are referred to as
Answers (1)
New Questions in Business
Use the appropriate compound interest formula to find the amount that will be in each account, given the stated conditions. $26,500 invested at 3.85 % annual interest for 2 years compounded (a) daily (n equals 365); (b) continuously
Answers (1)
Who or what is responsible for bringing together scarce resources to produce most of the goods and services in the u. s.?
Answers (1)
Southland Company is preparing a cash budget for August. The company has $17,500 cash at the beginning of August and anticipates $121,800 in cash receipts and $135,500 in cash disbursements during August.
Answers (1)
A domino is a rectangular tile composed of two squares. An integer is represented on both squares, and each integer 0-9 is paired with every integer 0-9 exactly once to form a complete set.
Answers (1)
Shelly Moyer has been granted a mortgage loan at an annual interest rate of 6% for 20 years. The home has a selling price of $170,000. The bank requires a 20% down payment. What are Shelly's closing costs including the down payment?
Answers (1)
Home » Business » The XYZ Company expects stock prices to increase. The current stock price is $37. The company purchases a call option, with an exercise price of $40 and a premium of $2 per share. Just before the expiration, stock price rises to $44.
Sign Up Forgot Password?