In 2003, a company employee received an option to purchase the company's stock at $45 per share. If the stock is trading at $40 a share in 2003, the employee will most likely... Is it to exercise the option, receiving a gain of $5?
no. Why would anone buy something for 45 when they can by it for 40
Thanks
To determine whether it is most likely for the employee to exercise the option and gain $5, we need to compare the stock's current price with the strike price of the option.
The strike price is the price at which the employee can purchase the company's stock through the option. In this case, the strike price is $45 per share.
If the stock's current price is lower than the strike price, it means the option is "out of the money," and exercising it would result in a loss. However, if the current price is higher than the strike price, the option is "in the money," and exercising it could result in a gain.
In this scenario, the stock is trading at $40 per share, which is lower than the strike price of $45 per share. Therefore, it is most likely that the employee will not exercise the option. If they were to exercise, they would be buying the stock at a higher price than the current market price, resulting in a loss.
Hence, the employee will most likely not exercise the option and will not gain $5 in this situation.