Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 10

An investor has $10,000 that she wants to invest in Apple Corporation. She can either go long in Apple's stock at a spot price of $100 per share on September 17, 2015 or purchase option contracts for $10 per share with an exercise price K = $110 per share, which expires on January 2016. Determine the payoff for both investment strategies assuming S T = $95, S T = $115, and S T = $140. Which strategy would you recommend?