Frank purchased a call option on 100 shares in Marmaduke plc six months ago at 10p per share. The share price at the time was 110p and the exercise price was 120p. Just prior to expiry the share price has risen to 135p.
Required
(a) State whether the option should be exercised.
(b) Calculate the profit or loss on the option.
(c) Would Frank have done better by investing the same amount of cash six months ago in a bank offering 10 per cent p.a.?