The price of ABC stock is currently $42 per share, but in six months you expect it to rise to $50. ABC does not pay a dividend. You buy a six-month call on ABC, with a strike price of
$45) The option cost $200. What holding period return do you expect on this call? Ignore transaction costs and taxes.
A) 150%
B) 200%
C) 250%
D) 300%

Question

Quizplus · Accepted Answer

The holding period return is calculated as (Selling price - Purchase price) / Purchase price. In this case, the selling price is $50 (the expected price of the stock in six months), and the purchase price is $200 (the cost of the call option). Therefore, the holding period return is ($50 - $200) / $200 = 150%.

The Price of ABC Stock Is Currently $42 Per Share