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)
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