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Safari File Edit View History Bookmarks Window Help ezto. connect FINANCE Chapter 10 Homework Question 4 (of 6) value: 16.66 points You have purchased a put option on Pfizer common stock. The option has an exercise price of $54 and Pfizer's stock currently trades at $56. The option premium is $0.90 per contract a. What is your net profit on the option if Pfizer's stock price does not change over the life of the option? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e-g, 32.16) Net profit b. What is your net profit on the option if Pfzer's stock price falls to $50 and you exercise the option? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g, 32.16)) Net profit 3.10 per share References eBook &Resources; Worksheet Dificulty Medium tion Check my work Previous attempt 17

Explanation / Answer

Ans a) If the price of Stock does not change and remains at $ 56, we will not exercise the option, thus

Net profit = ($ 0.90) i .e loss of $ 0.90 which is th actual premium paid to take the option.

Ans b) If Stock Price Fall to $ 50, we will exerce the option, Thus

Net Profit = (Exercise Price - Current Price) - Premium paid

                    = (54 - 50 ) - 0.90

                 = $ 3.10 per share

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