Suppose You Purchase a Call Option for $4 and a Strike

question 30

Multiple Choice

Suppose you purchase a call option for $4 and a strike price of $30.On the expiration day,the price of the stock is $40.What is the return on the call option if you hold your position until maturity?

• A)125%
• B)130%
• C)150%
• D)170%
• E)250%

---

Definitions:

Compounded Annually

When interest is compounded annually, it means the interest earned on an investment is added to the principal at the end of each year, with future interest calculations based on the new total.

Cash Flow Stream

A cash flow stream is a series of cash inflows and outflows over a period, often used in financial modeling to forecast or evaluate a project's viability.

Future Value

The estimated value of an investment or a sum of money at a specific date in the future, considering a specified rate of interest or growth.

Discount Rate

The rate at which future cash flows are discounted back to their present value in DCF analysis.