Both a call and a put currently are traded on stock XYZ; both have strike prices of $40 and expirations of 6 months. a. What will be the profit to an investor who buys the call for $5 in the following scenarios for stock prices in 6 months? (i) $40; (ii) $45; (iii) $50; (iv) $55; (v) $60. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place.) Stock Price i. $ ii. $ iii. $ iv. $ $ V. 40 45 50 55 60 Profit
Both a call and a put currently are traded on stock XYZ; both have strike prices of $40 and expirations of 6 months. a. What will be the profit to an investor who buys the call for $5 in the following scenarios for stock prices in 6 months? (i) $40; (ii) $45; (iii) $50; (iv) $55; (v) $60. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place.) Stock Price i. $ ii. $ iii. $ iv. $ $ V. 40 45 50 55 60 Profit
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![## Stock Options and Profit Calculation
### Call and Put Options for Stock XYZ
Both a call and a put option are currently traded on stock XYZ. Both options have strike prices of $40 and expire in 6 months.
### Problem Statement:
**a.** What will be the profit to an investor who buys the call for $5 in the following scenarios for stock prices in 6 months?
- (i) $40
- (ii) $45
- (iii) $50
- (iv) $55
- (v) $60
**Note:** Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place.
### Calculation Table:
| Stock Price | Profit |
|-------------|--------|
| i. $40 | |
| ii. $45 | |
| iii. $50 | |
| iv. $55 | |
| v. $60 | |
### Explanation:
For each stock price scenario, we'll calculate the profit for the call option buyer. The formula used to calculate the profit is:
\[ \text{Profit} = \text{Stock Price} - \text{Strike Price} - \text{Premium Paid} \]
Where the premium paid is $5.
- If \( \text{Stock Price} \leq \text{Strike Price} \), the profit is \( -\text{Premium Paid} \).
- If \( \text{Stock Price} > \text{Strike Price} \), the profit is \( \text{Stock Price} - \text{Strike Price} - \text{Premium Paid} \).
Let's fill in the table with the calculated profit values for each scenario.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff1fd60a6-e122-44a6-b63f-53f11d7f8fb8%2Ff52472fa-aaa4-47c6-8355-a867ac39d765%2F00yzmig_processed.png&w=3840&q=75)
Transcribed Image Text:## Stock Options and Profit Calculation
### Call and Put Options for Stock XYZ
Both a call and a put option are currently traded on stock XYZ. Both options have strike prices of $40 and expire in 6 months.
### Problem Statement:
**a.** What will be the profit to an investor who buys the call for $5 in the following scenarios for stock prices in 6 months?
- (i) $40
- (ii) $45
- (iii) $50
- (iv) $55
- (v) $60
**Note:** Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place.
### Calculation Table:
| Stock Price | Profit |
|-------------|--------|
| i. $40 | |
| ii. $45 | |
| iii. $50 | |
| iv. $55 | |
| v. $60 | |
### Explanation:
For each stock price scenario, we'll calculate the profit for the call option buyer. The formula used to calculate the profit is:
\[ \text{Profit} = \text{Stock Price} - \text{Strike Price} - \text{Premium Paid} \]
Where the premium paid is $5.
- If \( \text{Stock Price} \leq \text{Strike Price} \), the profit is \( -\text{Premium Paid} \).
- If \( \text{Stock Price} > \text{Strike Price} \), the profit is \( \text{Stock Price} - \text{Strike Price} - \text{Premium Paid} \).
Let's fill in the table with the calculated profit values for each scenario.
![### Profit Calculation for Put Option
**Scenario:** An investor buys a put for $7.50. Below are the different stock prices in 6 months and the respective profits:
#### Question:
What will be the profit to an investor who buys the put for $7.50 in the following scenarios for stock prices in 6 months?
1. $40
2. $45
3. $50
4. $55
5. $60
**Instructions:**
- Leave no cells blank – be certain to enter "0" wherever required.
- Negative amounts should be indicated by a minus sign.
- Round your answers to 1 decimal place.
#### Profit Calculation Table:
| Stock Price | Profit |
|-------------|--------|
| $40 | |
| $45 | |
| $50 | |
| $55 | |
| $60 | |
**Explanations:**
1. **Stock Price $40:**
* Put option profit calculation: [Maximum of (Strike Price - Stock Price - Put Premium), 0]
* Assume the strike price is $50.
* Profit = Max[(50 - 40 - 7.5), 0] = Max[(2.5), 0] = $2.5
2. **Stock Price $45:**
* Profit = Max[(50 - 45 - 7.5), 0] = Max[(-2.5), 0] = $0.0
3. **Stock Price $50:**
* Profit = Max[(50 - 50 - 7.5), 0] = Max[(-7.5), 0] = $0.0
4. **Stock Price $55:**
* Profit = Max[(50 - 55 - 7.5), 0] = Max[(-12.5), 0] = $0.0
5. **Stock Price $60:**
* Profit = Max[(50 - 60 - 7.5), 0] = Max[(-17.5), 0] = $0.0
Please fill in the calculated profits in the table accordingly:
| Stock Price | Profit |
|-------------|--------|
| $40 | 2.5 |
| $45 | 0.0 |
| $50 | 0](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff1fd60a6-e122-44a6-b63f-53f11d7f8fb8%2Ff52472fa-aaa4-47c6-8355-a867ac39d765%2Fgqfemq_processed.png&w=3840&q=75)
Transcribed Image Text:### Profit Calculation for Put Option
**Scenario:** An investor buys a put for $7.50. Below are the different stock prices in 6 months and the respective profits:
#### Question:
What will be the profit to an investor who buys the put for $7.50 in the following scenarios for stock prices in 6 months?
1. $40
2. $45
3. $50
4. $55
5. $60
**Instructions:**
- Leave no cells blank – be certain to enter "0" wherever required.
- Negative amounts should be indicated by a minus sign.
- Round your answers to 1 decimal place.
#### Profit Calculation Table:
| Stock Price | Profit |
|-------------|--------|
| $40 | |
| $45 | |
| $50 | |
| $55 | |
| $60 | |
**Explanations:**
1. **Stock Price $40:**
* Put option profit calculation: [Maximum of (Strike Price - Stock Price - Put Premium), 0]
* Assume the strike price is $50.
* Profit = Max[(50 - 40 - 7.5), 0] = Max[(2.5), 0] = $2.5
2. **Stock Price $45:**
* Profit = Max[(50 - 45 - 7.5), 0] = Max[(-2.5), 0] = $0.0
3. **Stock Price $50:**
* Profit = Max[(50 - 50 - 7.5), 0] = Max[(-7.5), 0] = $0.0
4. **Stock Price $55:**
* Profit = Max[(50 - 55 - 7.5), 0] = Max[(-12.5), 0] = $0.0
5. **Stock Price $60:**
* Profit = Max[(50 - 60 - 7.5), 0] = Max[(-17.5), 0] = $0.0
Please fill in the calculated profits in the table accordingly:
| Stock Price | Profit |
|-------------|--------|
| $40 | 2.5 |
| $45 | 0.0 |
| $50 | 0
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