Today, You Are Buying a One-Year Call on One Share

question 168

Multiple Choice

Today, you are buying a one-year call on one share of XYZ stock with a strike price of $35 along with a one-year risk-free asset which pays 5 percent interest. The cost of the call is $1.60 and the amount invested in the risk-free asset is $33.33. How much profit will you earn if the stock has a market price of $37 one year from now?

• A) $2.07
• B) $2.11
• C) $2.16
• D) $2.29
• E) $2.31

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Definitions:

Average Collection Period

The typical duration in days for a business to collect payments due from its clients.

Financial Statements

Official documentation of a business, individual, or entity's financial transactions and status, often comprising the balance sheet, income statement, and statement of cash flows.

Working Capital

The variance between a firm's current holdings and debts, reflecting its short-term economic condition and efficiency in procedures.

Balance Sheet

A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.