What conditions does the holder of the option make a profit

Assignment Help Financial Management
Reference no: EM13952125

Suppose a European call option to buy a share for $22.00 costs $1.50. The stock currently trades for $19.00. If the option is held to maturity under what conditions does the holder of the option make a profit? Note: ignore time value of money.

A) When the price of the stock is greater than $23.50.

B) When the price of the stock is greater than $20.50.

C) When the price of the stock is greater than $22.00.

Reference no: EM13952125

Questions Cloud

Order to achieve the target required return : A mutual fund manager has $40 million portfolio with a beta of 1.00. The risk free rate is 4.25%, and the market risk premium is 6%. The manager expects to receive an additional $60 million which she plans to invest in additional stocks. After invest..
Equity used is from retained earnings : Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1=$2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share. The before-tax cost of debt is 7.50%, and ..
What is the best estimate of current stock price : Ackert Company's last dividend was $1.55. The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever. The firm's required return (rs) is 12.0%. What is the best estima..
How could spectral lines from the two planets be separated : A distant star yields a spectrum showing two sets of hydrogen spectral lines: a strong red shifted set, and a weaker blue shifted. How might you interpret this observasion?
What conditions does the holder of the option make a profit : Suppose a European call option to buy a share for $22.00 costs $1.50. The stock currently trades for $19.00. If the option is held to maturity under what conditions does the holder of the option make a profit?
What is the w3c and what does it have to do with p3p : Summarize about P3P and present how this affects a website, website usage policies, privacy issues, agreements, etc.
Expected to pay dividend-what is the current stock price : The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, ..
What number of scans are the scanners equally profitable : Seattle Grace Hospital plans to invest in a new piece of CT imaging equipment. The hospital estimates that it can bill $1,500 per scan. Preliminary market assessments indicate that demand will be fewer than 5,000 scans per year. At what number of sca..
What is the firms expected rate of return : Maxwell Inc.'s stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm's expected rate of return?

Reviews

Write a Review

Financial Management Questions & Answers

  Decrease the length of time a company will extend credit

Which one of the following will tend to decrease the length of time a company will extend credit?

  The contract size for platinum futures

The contract size for platinum futures is 50 troy ounces. Suppose you need 500 troy ounces of platinum and the current futures price is $1,265 per ounce. How many contracts do you need to purchase? How much will you pay for your platinum? What is you..

  What approximate real rate of return does the lender expect

Parks Promotions, Inc. is able to borrow at an interest rate of 11 percent for one year. During that year, market participants expect 6 percent inflation. What approximate real rate of return does the lender expect?

  How banter can attempt to reduce its economic exposure

Of its revenues, 60% are due to exports to the US, where its product is invoiced in dollars. Explain how Banter can attempt to reduce its economic exposure to exchange rate fluctuations in the dollar.

  What is the simple payback period of the funace

A plasma arc furnace has an internal combustion temperature of 7,000 Celsius and is being considered for the incineration of medical wastes at a local hospital. the initial investment is $300,000 and annual revenues are expected to be $175,000 over t..

  What grounds do you base your accept-reject decision

McFann Co. has two divisions, L and H. Division L is the company's low-risk division and would have a WACC of 8% if it were operated as an independent company. On what grounds do you base your accept-reject decision? Division H's project should be ac..

  The spot price of a market index

The spot price of a market index is $1,085. A 9-month forward contract on this index is priced at $1,170. What is the profit or loss to a short position if the spot price of the market index is $1,095 on the expiration date?

  Should the major decisions on resource depletion

Should the major decisions on resource depletion (especially energy policy) be made: By government experts? By scientific experts? By everyone? Provide and develop moral arguments in support of your judgment.

  Capital gains be if you sell the stock in three years

You have just purchased the stock of Mature Company, which is expected to pay dividends of $1.03 next year. The company just paid dividends of $1. This growth rate is expected to continue indefinitely. You require a 10% return on your investment. Wha..

  What is real rate of return on bond-interest annually yields

Wine and Roses, Inc. offers a 6.0 percent coupon bond with semi annual payments and a yield to maturity of 6.91 percent. The bonds mature in 12 years. What is the market price of a $1,000 face value bond? A bond that pays interest annually yields a r..

  What is the projects payback period

A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project's IRR? A project has an initial cost of $59,675, expected net cash inflows of $12,000 per year for ..

  What is the present value of this two year loan

Your car loan requires payments of $200 per month for the first year and payments of $400 per month during the second year. The annual interest rate is 12% and payments begin in one month. What is the present value of this 2-year loan?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd