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Assignment:

The current price of a stock is $94, and a threemonth European call option with a strike price of $95 currently sells for $4.70. An investor who feels that the price of the stock will increase is trying to decide between investing in 100 stocks and investing in 2,000 call options (20 contracts) for 3 months.. Both strategies cost an initial investment of $9,400.

Required:

1. How high does the stock price have to rise in 3 months for the option strategy to be more profitable than the stock strategy?

2. In other words, at what stock price, will the 2 strategies result in the same profit?

Note: Please provide reasons to support your answer.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91148276

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