Stock versus Options (*NOTE: DO NOT WORRY ABOUT THE $40 CALCULATION)

Stock in Cheezy Manufacturing is currently priced at $50 per share. A call option with a $50 strike and 90 days to maturity is quoted at $1.95. Compare the percentage gains and losses from a $97,500 investment in the stock versus the option in 90 days for stock prices at $50 and $60.

The option premium is $1.95, so an option contract costs $195.

1. How many shares can be purchased with $97,500?

2. How many contracts can by purchased with $97,500?

3. If the stock is selling for $60 in 90 days then the payoff is: $

4. If the stock is selling for $60 what is the % gain?

5. If the stock is selling for $60 what is the profit on the options?

6. If the stock is selling for $50 in 90 days then the payoff is: $

7. If the stock is selling for $50 in 90 days then your option is worth: $