Question: Suppose that you bought a December call option on ABC stock with a strike price of $50 and that you paid $2 to purchase the

Suppose that you bought a December call option on ABC stock with a strike price of $50 and that you paid $2 to purchase the option.

For the following questions, assume that we can ignore discounting when comparing the exercise payoff and option premium.

a. What is the profit (loss) on your position if the stock price in December is $40?

b. What is the profit (loss) on your position if the stock price in December is $60?

c. What is the return on this position in case a?

d. What is the return on this position in case b?

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