Nico Yong Is Considering the Purchase of 100 Cisco Systems

question 17

Essay

Nico Yong is considering the purchase of 100 Cisco Systems shares at $22 per share. Because the economy is picking up, Nico believes the demand for Oracle's router systems will increase substantially causing the price of Cisco's shares to increase to $30 per share. As an alternative, Nico is considering the purchase of a call option for 100 shares of Cisco at with an exercise price of $25. This 180 day option will cost Nico $200. Ignore transaction costs and dividends. How much will Nico earn on the option transaction if he purchases the option and the underlying share price rises to $30?

---

Definitions:

Common Stockholder

An individual or entity that owns shares in a company's common stock, giving them the right to vote at shareholders' meetings and to receive dividends.

Proxy

An authorization to represent someone else, especially in the context of voting shares of a company.

Shareholder Authority

The rights and powers that shareholders have within a company, including voting on key issues and decisions.

Cumulative Voting

A voting system that allows shareholders to allocate all of their votes to one candidate or spread them among multiple candidates during board elections.