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Stock in Cheezy-Poofs Manufacturing is currently priced at $65 per share. A call

ID: 2769264 • Letter: S

Question

Stock in Cheezy-Poofs Manufacturing is currently priced at $65 per share. A call option with a $65 strike and 90 days to maturity is quoted at $3.25. Compare the percentage gains and losses from a $21,125 investment in the stock versus the option in 90 days for stock prices of $55, $65, and $75

Stock in Cheezy-Poofs Manufacturing is currently priced at $65 per share. A call option with a $65 strike and 90 days to maturity is quoted at $3.25. Compare the percentage gains and losses from a $21,125 investment in the stock versus the option in 90 days for stock prices of $55, $65, and $75

Stock in Cheezy-Poofs Manufacturing is currently priced at $65 per share. A call option with a $65 strike and 90 days to maturity is quoted at $3.25. Compare the percentage gains and losses from a $21,125 investment in the stock versus the option in 90 days for stock prices of S55, $65, and $75.

Explanation / Answer

after 90 days Profit/option % Option Gain/Loss stock price=S(T) max(S(T)-65,0)-3.25 Profit/3.25 55 -3.25 -100 Loss 65 -3.25 -100 Loss 75 6.75 207.69 Gain Intial stock price(S0) 65 after 90 days % stock Gain/Loss stock price=S(T) (S(T)-S0)/S0 55 -15.38 Loss 65 0 None 75 15.38 Gain

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