Chapter 01 · Section 1.1
Watchmaker Case Study - Question 3
If the Watchmaker receives the order and the gold price declines to $380/oz the Watchmaker will...
c) buy the gold on the spot market at the lower market price of $380/oz.
Yes. If the market price declines below $400/oz it would not be worth while to take advantage of the right to purchase gold at $400/oz, therefore, the option value decreases.Continue
a) take advantage of the right conveyed by the call option and will buy the 1,000 ounces of gold at the $400/oz specified in the option contract.
b) be obliged to buy gold at the $400/oz specified in the option contract.
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