Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For a total of $320 you can buy a 5-month call option giving you the right to buy 200 shares at a price of $27 per share. If you buy this option for $220 and Johnson's stock price is $29 in 5 months from now right before your option expires, would you exercise your call option and what would your pre-tax net profit or loss be? (Please show work)

Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For a total of $320 you can buy a 5-month call option giving you the right to buy 200 shares at a price of $27 per share. If you buy this option for $220 and Johnson's stock price is $29 in 5 months from now right before your option expires, would you exercise your call option and what would your pre-tax net profit or loss be? (Please show work)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 23P

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