Dexus Property Group shares currently trade at $9.10

Posted: January 10th, 2022

Dexus Property Group shares currently trade at $9.10. An investor enters into a call option on Dexus shares with an exercise price of $9.30 per share in two months, and a premium of $0.25 per share.

(a) Define an option and explain the premium and the exercise price.

(b) What is a call option?

(c) Draw a fully labelled diagram of the call option showing the profit and loss profile of the option buyer and the writer of the option (including the break-even price).

(d) At what minimum stock price will the option buyer exercise the option on the expiration date? (LO 18.5)