Question

An investor is considering buying 500 shares of ABC Company at $32 per share. Analysts agree that the firm's stock price may increase to $45 per share in the next 4 months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. At what stock price would the investor break even? (a) $35. (b) $40. (c) $42. (d) $45.

Name: an investor is considering buying 500 shares of abc company at 32 per share analysts agree that the firms stock price may increase to 45 per share in the next 4 months as an alternative the 05446
Uploaded: 2023-12-10T15:10:03-08:00
Duration: 1 min 1 s
Channel: Aarya B
Description: an investor is considering buying 500 shares of abc company at 32 per share analysts agree that the firms stock price may increase to 45 per share in the next 4 months as an alternative the 05446

          An investor is considering buying 500 shares of ABC Company at $32 per share. Analysts agree that the firm's stock price may increase to $45 per share in the next 4 months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. At what stock price would the investor break even?

(a) $35.
(b) $40.
(c) $42.
(d) $45.

Added by Encarnacion E.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Aarya B

12/10/2023

Step 1

The cost of the call option is $5,000, and the striking price is $30. If the stock price increases to $45 per share, the value of the call option would be: 500 shares x ($45 - $30) per share = $7,500 This represents a profit of: $7,500 - $5,000 = $2,500 To Show more…

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An investor is considering buying 500 shares of ABC Company at $32 per share. Analysts agree that the firm's stock price may increase to $45 per share in the next 4 months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. At what stock price would the investor break even? (a) $35. (b) $40. (c) $42. (d) $45.