Audrey is considering an investment in Morgan Communications, whose stock curren

Question

Audrey is considering an investment in Morgan Communications, whose stock currently sells for $65. A put option on Morgan's stock, with an exercise price of $56, has a market value of $4.38. Meanwhile, a call option on the stock with the same exercise price and time to maturity has a market value of $9.81. The market believes that at the expiration of the options the stock price will be either $70 or $50, with equal probability. b.If Morgan's stock price increases to $70, what would be the return to an investor who bought a share of the stock? Round your answer to two decimal places. % If the investor bought a call option on the stock? Round your answer to two decimal places. % If the investor bought a put option on the stock? Round your answer to two decimal places. %

Explanation / Answer

your answer is at Fundamentals of Financial Management - Page 613 - Google Books Result books.google.com/books?isbn=0324319819

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