Miss Liza, the CFO of Nice Biscuit Berhad (NBB) believes that all corporate securities have implicit or explicit option features and as a result, understanding securities that possess option features requires knowledge of the factors that determine an option's value. Miss Liza is also aware that the most familiar options are stock options. On 13th June 2024, Miss Liza buys call options on 50,000 units of Petronas Dagangan Berhad (PDB) shares with an exercise price of RM40 per unit. The value of the options is RM2 per unit and the termination date is on 30th June 2024. On 30th June 2024n the share price of PDB share is RM42. From the above information you are required to compute Miss Liza's gain or losses. Based on your computation, explain to Miss Liza about this situation.

SWFT Comprehensive Volume 2019
42nd Edition
ISBN:9780357233306
Author:Maloney
Publisher:Maloney
Chapter14: Property Transactions: Capital Gains And Losses, § 1231, And Recapture Provisions
Section: Chapter Questions
Problem 43P
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  1. Miss Liza, the CFO of Nice Biscuit Berhad (NBB) believes that all corporate securities have implicit or explicit option features and as a result, understanding securities that possess option features requires knowledge of the factors that determine an option's value. Miss Liza is also aware that the most familiar options are stock options.

On 13th June 2024, Miss Liza buys call options on 50,000 units of Petronas Dagangan Berhad (PDB) shares with an exercise price of RM40 per unit. The value of the options is RM2 per unit and the termination date is on 30th June 2024.

On 30th June 2024n the share price of PDB share is RM42.

From the above information you are required to compute Miss Liza's gain or losses.

Based on your computation, explain to Miss Liza about this situation.

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