The current price of a stock is $145, and three-month European call options with a strike price
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Question:
The current price of a stock is $145, and three-month European call options with a strike price of $149 currently sell for $6.40. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 1,600 call options. Both strategies involve an investment of $14,500.
- If the share price increases to $162, what will the gain to the investor be if he bought call options?
- If the share price increases to $162, what will the gain to the investor be if he bought shares?
- It is therefore advisable for the investor to buy _________( answer) in order to benefit from an increase in the share price.
- For both the strategies to be equally profitable the stock price should increase to _____ ( answer).
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt , Eugene F. Brigham
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