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Use the option quote information shown below to answer the questions that follow. The stock is currently

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Use the option quote information shown below to answer the questions that follow. The stock is currently selling for $111.
Use the option quote information shown below to answer the

a. Suppose you buy 10 contracts of the February 110 call option. How much will you pay, ignoring commissions?
b. In part (a), suppose that Macrosoft stock is selling for $130 per share on the expiration date. How much is your options investment worth? What if the terminal stock price is $121? Explain.
c. Suppose you buy 10 contracts of the August 110 put option. What is your maximum gain? On the expiration date, Macrosoft is selling for $102 per share. How much is your options investment worth? What is your net gain?
d. In part (c), suppose you sell 10 of the August 110 put contracts. What is your net gain or loss if Macrosoft is selling for $102 at expiration? For $124? What is the break-even price, that is, the terminal stock price that results in a zero profit?

Transcribed Image Text:

CALLS PUTS OPTION AND NY CLOSE STRIKE PRICE EXPIRATION VOL LAST VOL LAST Macrosoft Feb Mar May Aug 110 110 110 110 3.10 5.70 8.25 11.45 1.90 4.60 7.10 10.05 85 61 40

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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.

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