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Self-test 1

25 November, 2015 - 14:28
  1. A call option on Illinois stock specifies an exercise price of $38. Today's price for the stock is $40. The premium on the call option is $5. Assume that the option will not be exercised until the maturity date, if at all. Complete the following table.
Assumed stock price at the time the call option is about to expire Net profit or loss per share to be earned by the writer (seller) of the call option
$37  
$39  
$41  
$43  
$45  
$49  
 
  1. A call option on Michigan stock specifies an exercise price of $55. Today's price for the stock is $54 per share. The premium on the call option is $3. Assume that the option will not be exercised until maturity, if at all. Complete the following table for a speculator who purchases the call option.
Assumed stock price at the time the call option is about to expire Net profit or loss per share to be earned by the speculator
$50  
$52  
$54  
$56  
$58  
$60  
$62