Question

You expect a stock to reduce from its price of 90 USD/share on Day 1 but does not want to tie up your available funds by investing in this stock. Thus, you purchase a call option on the stock with the volume of 50 shares and the exercise price of 95USD/share and the premium of 2USD/share. At the option’s expiration date, the stock price rises to 110USD. Now, what is your decision with this call option contract? What is your profit/loss with that decision?

Answer 1

Step-by-step explanation:

last less than three years? To find this probability, we need to calculate the z-score for the value of three years and then use the standard normal distribution table to find the corresponding probability. First, we need to convert the three-year value to months since the standard deviation is given in months. So, three years is equal to 3 * 12 = 36 months. Next, we need to calculate the z-score using the formula: z = (x - μ) / σ Where: - x is the value we want to find the probability for (36 months in this case) - μ is the mean (4 years * 12 months/year = 48 months) - σ is the standard deviation (8 months) Plugging in the values, we get: z = (36 - 48) / 8 = -1.5 Now, we can use the standard normal distribution table or a calculator to find the corresponding probability. Looking up the z-score of -...See More