Warnes Motors' Stock Is Trading at $20 a Share

question 6

Multiple Choice

Warnes Motors' stock is trading at $20 a share. Call options that expire in three months with an exercise price of $20 have a price of $1.50. Which of the following will occur if the stock price increases 10 percent to $22 a share?

• A) The price of the call option will increase by $2.
• B) The price of the call option will increase by more than $2.
• C) The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10 percent.
• D) The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10 percent.
• E) The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10 percent.