1. You are the purchaser of a call option with $5 premium and $145 exercise pric
ID: 2713487 • Letter: 1
Question
1. You are the purchaser of a call option with $5 premium and $145 exercise price. You bought this option when the stock price was $120. If the stock price now is $155, what is the net cash flow to you if you exercise?
$10
$5
$30
$35
2. You are the purchaser of a put option where the premium is $4 and exercise price is $52. You bought this option when the stock price was $52. If the stock price is $42 right now, what is your net cash flow?
negative $14
negative $6
$6
$4
Explanation / Answer
1)
Net cash flow = Max{(stock price now - exercise price),0} - Call premium
Net cash flow = Max{(155-145),0} - 5
Net cash flow = 10-5
Net cash flow = $ 5
Answer
$ 5
2)
Net cash flow = Max{(exercise price - stock price now),0} - Call premium
Net cash flow = Max{(52-42),0} - 4
Net cash flow = 10-4
Net cash flow = $ 6
Answer
$ 6
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.