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April 25th, 2013, 05:18 PM   #1
Joined: Apr 2013

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European call option

Suppose that you purchase for 4 dollars a European call option with a strike price of 50 dollars. If the stock price on the exercise date is 38 dollars, what is your profit? Assume the risk-free interest rate is r=0.
Please guide me through on how to solve this problem. It seems pretty simple but I think I am missing something.
What I did:
So = $4 and K = $50 so Vo = $4-$50 = -$46.
S1 = $38 so V1 = $38 - $50 = -$12
Profit = -$12 + $46 = $34 (which is the wrong answer)
floralenator is offline  
September 9th, 2013, 06:59 AM   #2
Joined: Sep 2013

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Re: European call option

Actually it is quit simple:

Your investment is USD 4.
On Expiration your call is worthless(=max(0,38-50)=0)

So you lose USD 4
DrSnuggles is offline  

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