Answered

Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share:_______

a. increases to $504.
b. decreases to $490.
c. increases to $506.
d. decreases to $496.
e. none of the above.

Answer :

Answer:

c. increases to $506.

Explanation:

Given that the Google stock price of a share = $500

Premium on the call option of a google stock = $5

And, the exercise price = $500

based on the above information, the price of the share is

Since first we have to find the price i.e. break even which is come from

= $500 + $5

= $505

Also the price of the stock rise to the above $505 for earning the profit in the call option i.e. $506

Hence, the correct option is c. $506

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