Suppose you purchase a call option for $5 and a strike price of $20. On the expiration day, the price of the stock is $30. What is the return on the call option if you hold your position until maturity?
A) 25%
B) 50%
C) 75%
D) 100%

Question

Quizplus · Accepted Answer

D) Price of a call option = Stock Price - Strike Price, if Stock Price is greater than Strike Price;
Price of a call option = $0, if Stock Price is less than or equal to Strike Price.
Return = (Option payoff - cost) / cost
Option payoff = $30 - $20
Return = ($10 - $5) / $5 = 100%

Suppose You Purchase a Call Option for $5 and a Strike