Warnes Motors\' stock is trading at $20 a share. Three-month call options with a

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?
Answer
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%.

Explanation / Answer

c.The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.

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