Three months ago an investment company bought for £8 a call option on a stock with an exercise price of £136. If the stock price at expiration of this option is £147. Select which of the following best describes the option value, the decision of the Investment Company and the return on investment thereon.   A. Option value                                              Decision                            Profit / (loss) % Exercise price – Stock price                      Exercise                                  37.5%   B. Option value                                              Decision                           Profit / (loss) % Stock price – Exercise price                      Don’t Exercise                        2.2%   C. Option value                                              Decision                           Profit / (loss) % Exercise price – Stock price                      Exercise                                  2.2%   D. Option value                                              Decision                          Profit / (loss) % Stock price – Exercise price                     Exercise                                37.5%

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
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1.  Three months ago an investment company bought for £8 a call option on a stock with an exercise price of £136. If the stock price at expiration of this option is £147. Select which of the following best describes the option value, the decision of the Investment Company and the return on investment thereon.

  A.

Option value                                              Decision                            Profit / (loss) %

Exercise price – Stock price                      Exercise                                  37.5%

  B.

Option value                                              Decision                           Profit / (loss) %

Stock price – Exercise price                      Don’t Exercise                        2.2%

  C.

Option value                                              Decision                           Profit / (loss) %

Exercise price – Stock price                      Exercise                                  2.2%

  D.

Option value                                              Decision                          Profit / (loss) %

Stock price – Exercise price                     Exercise                                37.5%

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