Assignment:
The current price of a stock is $94, and a threemonth European call option with a strike price of $95 currently sells for $4.70. An investor who feels that the price of the stock will increase is trying to decide between investing in 100 stocks and investing in 2,000 call options (20 contracts) for 3 months.. Both strategies cost an initial investment of $9,400.
Required:
1. How high does the stock price have to rise in 3 months for the option strategy to be more profitable than the stock strategy?
2. In other words, at what stock price, will the 2 strategies result in the same profit?
Note: Please provide reasons to support your answer.