# You have purchased one call option expiring in one year with a strike price of \$40. The current price of the underlying is \$30, the interest rate is zero, and the premium for the call option is \$2.63. (1) Draw the payoff and P&L diagrams for the call option at expiration. (2) What is the P&L on the option at expiration if the underlying is \$57.50 (i.e. S, = 57.5)?

Explanation:

2)

Calculation of P&L

Underlying Price = \$ 57.70

Underlying Price is more than exercise price (40) ⇒ the option is exercised.

Initial Cash Flow = - \$ 2.63

Cash Flow at Expiration = \$ 57.70 - \$ 40 = \$ 17.70

Prrofit = \$ 17.7 - \$ 2.63 = \$ 15.07

## Related Questions

Trade based on comparative advantage benefits: Multiple Choice producers in all countries but not consumers. consumers in some countries but hurts consumers in other countries. neither producers nor consumers. consumers in all countries.

The comparative advantage is the ability of a person, company or country to produce a good using relatively less resources than another.

The concept of comparative advantage is one of the basic foundations of international trade through which consumers in all countries benefit, since thanks to international trade they obtain products that the country alone could not offer them.

Is "bigness" in industry the result of manipulation, or the natural workings of economic laws? Is "bigness" in industry bad and if so, why?

Bigness in industry is resulted because of the working of the economic laws and increase in the efficiency.

Explanation:

Bigness in industry means that the size of the industries has grown in the economy. The production has been increased, the quality and the quantity of the production has gone up.

The bigness in industry somewhat harmed the economy because the way the employees were dealt by the employers was not very fair. There was damage done to the environment also because of the increase in the production by the industries. So bigness in industry was bad.

Ben & Jerry's offers a complimentary scoop of ice cream on "Free Cone Day." What type of sales promotion has just been described? Question 10 options: 1) product placement 2) sample 3) premium 4) sweepstakes 5) deal

Explanation:

Sales Promotion is the term which is stated as the process in which the customer or buyer is persuaded for buying the product. It is designed to use as the tactic which is short term in order to boost the sales of the product.

The kind of sales promotion used is the sample where the Ben and Jerry offers a complimentary scoop of the ice cream.

Ivan is the founder of a firm producing self-driving vehicles. Because the industry is so new and chaotic, Ivan favors a top-down strategic planning approach in which he exerts strong control over all aspects of the business, from product development and design to manufacturing and marketing. What is wrong with this scenario? A. The top-down approach leaves other employees uncertain about their roles in the company.
B. The top-down approach can only be applied to specific business functions.
C. The top-down approach is expensive to maintain, leaving the company at a competitive disadvantage.
D. The self-driving vehicle industry is changing too much for the top-down approach to be effective.

What is wrong with this scenario?

A. The top-down approach leaves other employees uncertain about their roles in the company.

Explanation:

Strategic planning can be defined as the process of idealizing and directing a business in such a way that the business is operated towards organizational goals. A strategic plan should be documented for future reference. Such a plan can play a major role in organizational growth and success since it gives a road map on how to run the organization. There are different approaches to a strategic plan as shown;

1. Top-down approach

A top-down approach can be done in two ways depending on the organization structure. In a centralized structure, all directions come from the Chief Executive Officer down to other departments heads. In a decentralized structure, the CEO requests for proposals from department heads then he/she makes the final decision.

2. Bottom-up approach

The plans are submitted by the subordinates following direction from the top management.

Each approach has it's disadvantages and advantages depending on the organization structure. One disadvantage of the Top-down approach is that it leaves other employees uncertain about their roles in the company since decision making is centralized.