Money and Banking questions!! 1. An investor buys a share of AA stock for a pric

Question

Money and Banking questions!!

1. An investor buys a share of AA stock for a price of $55. If she wants to sell it one year later at the market price and the market price is $53, then what is her profit?

2. A trader owns one put option for a share of Amazon stock, and paid a premium of $3. The strike price is $960. One year later, the day the option the expires, the market price of the stock is $958. The payoff for the trade is

3. A Fancy Firm owns a call option on a share of stock AA, and paid a premium of $9. The strike price is $101. At the date the option is going to expire, the current market price of the stock is $111. In this case, the Firm should _____ the option and will earn a profit of _____.

Explanation / Answer

Question 1

Purchase price of stock = $55

Market price after one year = $53

Calculate the profit -

Profit = Market price after one year - Purchase price of stock = $53 - $55 = -$2

Her profit is -$2.

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