An Investor Purchases a Call Option with an Exercise Price

question 8

Multiple Choice

An investor purchases a call option with an exercise price of $55 for $2.60.The same investor sells a call on the same security with an exercise price of $60 for $1.40.At expiration,3 months later,the stock price is $56.75.All other things being equal and given an annual interest rate of 4.0%,what is the net profit or loss to the investor?

• A) $1.21 loss
• B) $1.50 loss
• C) $0.54 gain
• D) $1.65 gain

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Definitions:

Level Of Significance

The threshold for determining whether a statistical result is not due to chance, often set at 0.05 or 5% in many scientific studies.

Sample Size

The amount of observations or data points obtained from a population for statistical analysis purposes.

Level Of Significance

The threshold for rejecting the null hypothesis in a statistical test, often denoted by alpha and representing the risk of a Type I error.

One-Tail

It refers to tests of significance that determine if there is a relationship or a difference in only one direction, either greater than or less than, but not both.