Mr Alexander paid a premium of $4 per share for one 3-month call option contract (one contract = 100 shares) of XYZ Corporation with a strike price of $55 per share. At the time of purchase, the XYZ stock was selling for $56 per share.

(a)Compute Mr. alexander's profit or loss if the price of XYZ stock is $54 when the option is exercised (i.e., on maturity)?

(b)What is Alexander's profit or loss if the price of XYZ stock is $62 when the option is exercised (i.e., on maturity)? (Assume there is no tax and no transaction cost)

(You must show all necessary workings)

Answer rating: 100% (QA)

To calculate Mr Alexanders profit or loss in each scenario we need to consider the following 1 For t... View the full answer