Final answer:
The dollar payoff from the 9 call option contracts is $954, calculated by subtracting the cost of the option premium from the intrinsic value of the options at expiration.
Step-by-step explanation:
The student's question involves calculating the dollar payoff from option contracts. The student purchased 9 call option contracts for HSB Industries with a strike price of $45 and an option premium of $1.82. On the expiration date, the stock was at $47.88 a share.
The intrinsic value per share is the difference between the stock value at expiration ($47.88) and the strike price ($45), which equals $2.88. Since each option contract usually represents 100 shares, one contract would have an intrinsic value of $2.88 x 100 = $288. However, to find the profit, the premium paid must be subtracted: $288 - ($1.82 x 100) = $106 per contract. Therefore, the total dollar payoff for 9 contracts would be 9 x $106 = $954.