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 $50 and maturities of six months.

a. What will be the profit/loss to an investor who buys the call for $4.00 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.)

b. What will be the profit/loss in each scenario to an investor who buys the put for $6.00? (Loss amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Stock Price   Profit/Loss
per share   a. $40 $   b. 45   c. 50   d. 55   e. 60

Explanation / Answer

(a) buys the call for $4 : Stock Price Profit(+) / loss(-) a $40 40-50-4=-14 b 45 45-50-4=-9 c 50 50-50-4=-4 d 55 55-50-4=1 e 60 60-50-4=6 (b)buys put for $6 : Stock Price Profit(+) / loss(-) a $40 50-40-6= 4 b 45 50-45-6 = -1 c 50 50-50-6=-6 d 55 50-55-6 = -11 e 60 50-60-6 = -16

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