Option Trading Strategies - Two Assets $40 First Asset Profit Second Asset Profit Total Profit 1st Exercise Price - 2nd Exercise Price $20 $20 -$40 $60 Stock Price At Maturity so $20 $40 $80 Long Call $20 + Short Call $35 Long Put $40 + Long Call $40 Long Underlying S20 + Short Call $20 Long Call $40 + Short Call $50 Long Put $40 Long Put $40 + Long Call $50 Long Call $40 Long Call $25 + Short Call $35 + Short Call $35 + Long Call $45 Short Call $25 + Long Call $35 + Long Call $35 + Short Call $45 Short Call $40 + Short Put $40 Profit

Q: What is the formula to find an expected in returns in CAPM

A: In this question, we are required to determine the formula for expected return in Capital Asset…

Q: Create a chart reflecting the conventional payback period?

A: The question is based on the calculation of payback period.

Q: Define an inverted yield curve. What does it indicate?

A: A yield curve is a graph that shows the yields of bonds with different maturities. Normally, a yield…

Q: Define semistrong form of market efficiency

A: Answer: Efficient market is one where the market price constitutes a balanced estimate of…

Q: List and compare all advantages and disadvantages of Payback Period Rule, Average Accounting Return,…

A: Payback rule: The Payback period is the length of time required to recover the initial cost of a…

Q: Describe about the Option-pricing models?

A: The option pricing model utilizes factors (stock value, exercise price, volatility, interest rate,…

Q: The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the…

A: Based on CAPM, Expected return on security = Risk free rate + Beta * Market risk premium

Q: dentify the decision rule that best fits each of the following descriptions.    Dollar profit…

A: IRR is internal rate of return at which NPV is zero.

Q: Profit volume ratio is used for the calculation of: Select one: O a. For all options provided b.…

A: The profit-volume ratio, which is commonly calculated as a percentage, reflects the connection…

Q: What tool can you use to incorporate probabilities into the What-If analysis? Sensitivity…

A: The objective of the question is to identify the tool that can be used to incorporate probabilities…

Q: Identify and differentiate or define the types of

A: There are mainly two types of payback analysis : 1. Payback period 2. Discounted payback period

Q: Fully discuss the Arbitrage Pricing Model. Show formula and give examples.

A: There are multiple methods that estimate the stock's required return. The capital asset pricing…

Q: Define each of the following terms: c. Net present value (NPV) method; internal rate of return (IRR)…

A: Net present value (NPV) is the contrast between the present value of money inflows over some…

Q: In the price equation, incentives are subtracted from the list price and are added to it to…

A: A final price is the price which is set by the company for a product after all the additions and…

Q: Define target payout ratio

A: SOLUTION:- A target payout ratio is a degree of the proportion of a company's profits it would want…

Q: Which of the following transfer price approaches is used when the transfer price is set at the…

A: Transfer Price  : Price at which related parties transact with each other is known as transfer…

Q: Describe relationship between risk and profitability.

A: Risk and profitability have direct relation. Lower the risk, lower is the return and Higher the…

Q: Explain real rate of return

A: This is the raw rate of return adjusted with inflation. It is used to ascertain the effective return…

Q: Explain expected rate of return

A: Return: Return is defined as the money attained or lost on an investment through certain time…

Q: Define yield.

A: Yield can be considered as a metric for cash flow for the investor on the amount with which a…

Q: Explain the relationship between contango, cost-of-carry, and convenience yield. d. Explain the…

A: A derivative contract is a financial agreement or instrument between two or more parties that…

Q: Carrying amounts in a GAAP balance sheet are measured using all the following except: Multiple…

A: From the given options, we can see that three options are commonly used in measuring carrying…

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.