Question

An investor buys a European put at a premium of $3.69 with a strike price of $75 for stock A with expiration in 1-month. What will be the profit for the investor in one month at stock price of $72.20. (Negative amounts should be indicated by a minus sign. Enter 0 if required. Omit the "$" sign in your response.)

Answer 1

The profit for the investor in one month at a stock price of $72.20 is -$0.51.

Step-by-step explanation:

To determine the profit for the investor, we need to compare the strike price of the put option with the stock price at expiration. If the stock price at expiration is below the strike price, the investor will make a profit. In this case, the strike price of the put option is $75 and the stock price at expiration is $72.20.

The investor will exercise the put option and sell the stock at the higher strike price, resulting in a profit. The profit can be calculated as the difference between the strike price and the stock price at expiration, minus the premium paid for the put option.

Profit = (Strike Price - Stock Price at Expiration) - Premium.

Substituting the given values,

Profit = ($75 - $72.20) - $3.69 = $-0.51.

Therefore, the profit for the investor in one month at a stock price of $72.20 is -$0.51 (negative $0.51).