You Purchased a Call Option for $3

question 12

Multiple Choice

You purchased a call option for $3.45 17 days ago. The call has a strike price of $45, and the stock is now trading for $51. If you exercise the call today, what will be your holding-period return? If you do not exercise the call today and it expires, what will be your holding-period return?

• A) 173.9%, −100%
• B) 73.9%, −100%
• C) 57.5%, −173.9%
• D) 73.9%, −57.5%
• E) 100%, −100%

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Definitions:

Competitive Market

A market structure characterized by a large number of buyers and sellers, similar products offered by the competing businesses, and a negligible amount of market control held by each seller.

Coconuts

The large, oval, brown seed of a tropical palm, containing a clear liquid and a white, edible flesh.

Fish

Aquatic, gill-bearing animals that lack limbs with digits.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than its competitors, leading to a more efficient allocation of resources.