Both a call and a put currently are traded on stock XYZ; both have strike prices

Question

Both a call and a put currently are traded on stock XYZ; both have strike prices of $45 and maturities of six months. a. What will be the profit/loss to an investor who buys the call for $4.65 in the following scenarios for stock prices in six months? (Loss amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Stock Price Profit/Loss a. $35 $ b. 40 c. 45 d. 50 e. 55 b. What will be the profit/loss in each scenario to an investor who buys the put for $7.50? (Loss amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Stock Price Profit/Loss a. $35 $ b. 40 c. 45 d. 50 e. 55

Explanation / Answer

Call pay off = Max(stock price-strike price-call premium,-call premium)

Put payoff = Max(strike price-stock price-put premium,-put premium)

Strike price= 45 Call premium 4.65 Put premium 7.5 Stock price Call Payoff Put Payoff 35 -4.65 2.5 40 -4.65 -2.5 45 -4.65 -7.5 50 0.35 -7.5 55 5.35 -7.5

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