Warnes Motors\' stock is trading at $20 a share. Three-month call options with a
ID: 2671156 • Letter: W
Question
Warnes Motors' stock is trading at $20 a share. Three-month call options with an exercise price of $20 have a price of $1.50. Which of the following will occur if the stock price increases 10% to $22 a share?
a)The price of the call option will increase by $2.
b)The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.
c)The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.
d)The price of the call option will increase by more than $2.
e)The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.
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Explanation / Answer
Warnes Motors' stock is trading at $20 a share. Three-month call options with an exercise price of $20 have a price of $1.50. Which of the following will occur if the stock price increases 10% to $22 a share?
a)The price of the call option will increase by $2.
b)The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.
c)The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.
d)The price of the call option will increase by more than $2.
e)The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.
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