5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify twoalternative investment strategies, one in the stock and the other in an option on the stockStrategy 1 (stock):$25 $30 $32$40Stock price (S) in the marketProfit from strategy 1$35$45a) Would you buy or sell stocks?b) How many stocks would you buy or sell?c) How will you make money?Strategy 2 (option):$20$25$30$32$35$40$45Stock price (S-) in themarketOption value (Pay off)PremiumProfit from strategy 2a) Would you buy or sell call options?b) How many call options would you buy or sell?c) How will youmake money?

Call Option is a derivative contract that gives holder a right to purchase assets at future date but…

5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify two alternative investment strategies, one in the stock and the otherin an option on the stock Strategy 1 (stock): Stock price (S) in the market Profit from strategy1 $25 $30 $32 $35 $40 $45 a) Would you buy or sell stocks? b) How many stocks would you buy or sell? c) How will you make money? Strategy 2 (option): Stock price (S,) in the $20 $25 $30 $32 $35 $40 $45 market Option value (Pay off) Premium Profit from strategy 2 a) Would you buy or sell call options? b) How many call options would you buy or sell? c) How will you make money?

5.You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $32 costs $3. You have $6000 to invest. Identify two alternative investment strategies, one in the stock and the otherin an option on the stock Strategy 1 (stock): Stock price (S) in the market Profit from strategy1 $25 $30 $32 $35 $40 $45 a) Would you buy or sell stocks? b) How many stocks would you buy or sell? c) How will you make money? Strategy 2 (option): Stock price (S,) in the $20 $25 $30 $32 $35 $40 $45 market Option value (Pay off) Premium Profit from strategy 2 a) Would you buy or sell call options? b) How many call options would you buy or sell? c) How will you make money?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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solve a,b,c and d please
Want the Correct answer of what is correct option
You decide to form a portfolio of the following amounts invested in the following stocks. What is the expected return of the portfolio? SET YOUR CALCULATOR TO 4 DECIMAL PLACES THEN INPUT THE NUMBER AS PERCENTAGE ROUNDING TO 2 DECIMALS. DO NOT ENTER THE % SYMBOL..i.e. if your answer is 7.7711%, enter it as 7.77. Stock Apple Microsoft Ford Time Warner Amount Beta Expected Return $1,125 2.40 10.50% $4,649 0.73 16.90% $9,502 1.95 15.75% $1,831 1.27 11.80%
A stock's current price is $20 and a 3-month call with a strike price of $22 sells for $2. You have $4,000 to invest and are comparing two alternate strategies: 1) Buy 200 shares of the stock; 2) Buy 2,000 call options on the stock. Which of the following is correct? The two strategies are equally profitable when the stock price is $26.00 O b. The two strategies are equally profitable when the stock price is $22.00 О с. The option strategy is more profitable when the stock price is $26.00 LO
An investor buys a stock if price rises 5% from the 250-day low and shorts a stock if price falls 5% from the 250-day high. What is this strategy called? Will it work if the market is efficient? Explain why
Please only solve part C A manager buys three shares of stock today, and then sells one of those shares each year for the next 3 years. His actions and the price history of the stock are summarized below. The stock pays no dividends. Time Price Action 0 $ 130 Buy 3 shares 1 150 Sell 1 share 2 150 Sell 1 share 3 150 Sell 1 share a. Calculate the time-weighted geometric average return on this portfolio Time Cash Return 0 3*-130= -390 1 1*150= 150 (150-130)/130= 15.38% 2 1*150= 150 (150-150)/150= 0% 3 1*150= 150 (150-150)/150= 0% Geo Avg Ret= (1.1538)1/3 - 1 = 4.88% b. Calculate the time-weighted arithmetic average return on this portfolio Arith Avg Ret= (15.38+0+0)/3 = 5.13% c. Calculate the dollar-weighted average return on this portfolio
A manager buys three shares of stock today, and then sells one of those shares each year for the next 3 years. His actions and the price history of the stock are summarized below. The stock pays no dividends. Time Price Action 0 $ 150 Buy 3 shares 1 180 Sell 1 share 2 180 Sell 1 share 3 180 Sell 1 share Required: a. Calculate the time-weighted geometric average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Calculate the time-weighted arithmetic average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Calculate the dollar-weighted average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose that call options on XYZ stock with time to expiration 3 months and strike price $90 are selling at an implied volatility of 30% ExxonMobil stock price is $90 per share, and the risk free rate is 4%. Required: a1 If you believe the true volatility of the stock is 32%, would you want to buy or sell call options? a2-Now you want to hedge your option position against changes in the stock price. How many shares of stock will you hold for each option contract purchased or sold?
Ningbo Industrial Concepts Incorporated Initial stock price $115.00 Exercise price $115.00 Call price $4.75 Put Price $4.50 Required: Using the information in the table above, please calculate dollar value of the following option strategies. Use this calculated dollar value to determine the profit of each strategy at various stock prices. (Use cells A3 to B6 from the given information to complete this question. Negative answer should be input and displayed as a negative value. All other answers should be input and displayed as positive values.) Ningbo Industrial Concepts Incorporated Dollar Value of Strategy as a Function of Current Stock Price Strategy $95.00 $105.00 $115.00 $125.00 $135.00 Straddle Strip Strap Ningbo Industrial Concepts Incorporated Rate of Return…
EXCEL PROJECT AND EXCEL SOLUTION Consider the following stocks, all of which will pay a liquidating dividend in a year and nothing in the interim: Stock A Stock B Stock с Stock D Market Capitalization (5 million) 800 750 950 900 Expected Liquidating Dividend ($ million) 1000 1000 1000 1000 Beta PLEASE SHOW SOLUTIONS IN EXCEL 0.77 1.46 1.25 1.07 a. Calculate the expected return of each stock. b. What is the sign of correlation between the expected return and market capitalization of the stocks? In Problem 20, assume the risk-free rate is 3% and the market risk premium is 7%. a. What does the CAPM predict the expected return for each stock should be? b. Clearly, the CAPM predictions are not equal to the actual expected returns, so the CAPM does not hold. You decide to investigate this further. To see what kind of mistakes the CAPM is making, you decide to regress the actual expected return onto the expected return predicted by the CAPM.49 What is the intercept and slope coefficient of…
Bha
Current Attempt in Progress You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $190,000 285,000 475,000 Beta of the portfolio Beta Expected rate of return 1.45 0.60 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 17 percent and that the risk-free rate is 6 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.30 %

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