Suppose You Purchase a Call Option for $5 and a Strike

question 101

Multiple Choice

Suppose you purchase a call option for $5 and a strike price of $20. On the expiration day, the price of the stock is $30. What is the return on the call option if you hold your position until maturity?

• A) 25%
• B) 50%
• C) 75%
• D) 100%

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Definitions:

Regression Equation

A mathematical formula used to predict the value of a dependent variable based on the values of one or more independent variables.

Beta

A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates the stock is more volatile than the market, while a beta less than 1 indicates less volatility.

Adjustment Technique

A method used in different contexts to correct or modify processes, values, or systems for a specific purpose, often for accuracy or improvement.

Regression Parameters

The coefficients in a regression equation that represent the relationship between the independent variables and the dependent variable.