A stock is trading at $50 per share. Now assume you believe the following predictions of...

  

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A stock is trading at $50 per share. Now assume you believe the following predictions of stock price after 3 month: Economy Scenario Severe recession Mild recession Normal growth Boom Probability 0.10 Stock Price Per Share at the maturity $30 $45 $55 $70 An at-the-money 3-month call (equaling 100 shares of stocks) is available at a cost of $1000 per contract. What is the expected dollar profit and expected return for a buyer of 0.25 0.25 0.40 this call at the end of 3 months? A stock is trading at $50 per share. Now assume you believe the following predictions of stock price after 3 month: Economy Scenario Severe recession Mild recession Normal growth Boom Probability 0.10 Stock Price Per Share at the maturity $30 $45 $55 $70 An at-the-money 3-month call (equaling 100 shares of stocks) is available at a cost of $1000 per contract. What is the expected dollar profit and expected return for a buyer of 0.25 0.25 0.40 this call at the end of 3 months?

Answer rating: 100% (QA)

To calculate the expected dollar profit and expected return for a buyer of the call option at the end of 3 months we need to consider the probabilitie... View the full answer