106k views
0 votes
Suppose you believe that Florio Company's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $5.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $85 per share. If you bought this option for $5.10 and Florio's stock price actually dropped to $60, what would your pre-tax net profit be

User Didier L
by
5.0k points

1 Answer

3 votes

Answer:

$19.9

Explanation:

According to the given situation the computation of pre-tax net profit is shown below:-

Net pre-tax profit = Option exercised per share + Actual stock price at the end + Profit - Option premium

= $85 + $60 + $25 - $5.10

= $19.9

Therefore for computing the pre-tax net profit we simply applied the above formulas.

User Imran Khan
by
5.3k points