You own a call option on Intuit stock with a strike price of $45. When you purchased the option, it cost $5. The option will expire in exactly three months' time. a. If the stock is trading at $61 in three months, what will be the payoff of the call? What will be the profit of the call? b. If the stock is trading at $35 in three months, what will be the payoff of the call? What will be the profit of the call? c. Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration. d. Redo c, but instead of showing payoffs, show profits.

You own a call option on Intuit stock with a strike price of $45. When you purchased the option, it cost $5. The option will expire in exactly three months' time. a. If the stock is trading at $61 in three months, what will be the payoff of the call? What will be the profit of the call? b. If the stock is trading at $35 in three months, what will be the payoff of the call? What will be the profit of the call? c. Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration. d. Redo c, but instead of showing payoffs, show profits.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4MC

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