You spend many sleepless nights building cash flow models of Facebook Inc. (FB) and are convinced they are undervalued. The current spot price of FB is $204/share. You predict that in 6 months they will reach $240/share. Assume a 2% interest rate per annum. a) You buy a January 2020 call option (t=6 months) for $5.20/share with a strike price of $230/share. Draw a payoff and profit diagram of this position. b) Under what circumstances will you make money?

You spend many sleepless nights building cash flow models of Facebook Inc. (FB) and are convinced they are undervalued. The current spot price of FB is $204/share. You predict that in 6 months they will reach $240/share. Assume a 2% interest rate per annum. a) You buy a January 2020 call option (t=6 months) for $5.20/share with a strike price of $230/share. Draw a payoff and profit diagram of this position. b) Under what circumstances will you make money?

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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