Question

2) You purchase one MBI July 125 call contract (equaling 100 shares) for a premium of $5. You hold the option until the expiration date, when MBI stock sells for $123 per share. You will realize a ________ on the investment. A) $200 profit B) $200 loss C) $500 profit D) $500 loss

Answer 1

Answer:

D) $500 loss

Explanation:

The computation of the realized value on the investment is shown below:

= Number of shares × premium

= 100 shares × $5

= $500 loss

Since the call is for 125 shares for $125 and the selling price per share is $123  due to which the contract is not implemented. So the premium amount would be recorded as a loss of $500