Please show work for this problem. Eric Wertz is considering the following alter
ID: 2743532 • Letter: P
Question
Please show work for this problem.
Eric Wertz is considering the following alternatives for investing in Zee Industries which is now selling for $44 per share:
(1)
Buy 500 shares, and
(2)
Buy six month call options with an exercise price of 45 for $3.25 premium.
Assuming no commissions or taxes what is the annualized percentage gain if the stock reaches $50 in four months and a call was purchased?
a.
161.54% gain
b.
53.85% gain
c.
161.54% loss
d.
11.11% gain
e.
53.85% loss
(1)
Buy 500 shares, and
(2)
Buy six month call options with an exercise price of 45 for $3.25 premium.
Explanation / Answer
= [(50 - 45 - 3.25) ÷ 3.25] x 3
= 161.54% gain
ANSWER = A) 161.54% gain