You Paid $5 a Call Option on a Stock with an Exercise

question 87

Multiple Choice

You paid $5 a call option on a stock with an exercise price of $80.If the current stock price is $60, your net proceeds by exercising this option and selling the stock will be:

• A)($25).
• B)$0.
• C)$20.
• D)$60.

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Definitions:

Adaptive Expectations Theory

An economic theory that proposes individuals adjust their expectations for the future based on recent past experiences and events.

Certainty Equivalent Theory

An economic theory that quantifies how much risk an investor is willing to take on, expressed as the minimum guaranteed amount an investor would accept rather than take a gamble.

Theories Of Expectations

Economic theories that explore how the expectations of individuals or firms about future economic conditions affect their current decision-making and behavior.

Rational Expectations Theory

A concept suggesting that individuals make decisions based on their rational outlook, available information, and past experiences.