QUESTION 6Part ARyan is a risk adverse investor. He has $40,000 to invest for one year. He has two choices:Choice #1: Buy shares of Tesla Inc.; which can payoff:• 510.000 if Tesla is in a high payoff state (H) and,• 54,000 If Tesla is in a low payoff state (L)Choice #2: Buy shares of Apple Inc.: with which can payoff:• $10,500 if Apple is in a high payoff state (H) and,• 52,000 if Apple is in a low payoff state (L)Ryan's prior probabilities on the future state of Tesla and Apple are both:P(H) = 0.80P(L) = 0.20%3DRyan's utility is equal to the square root of the amount of the payoff. (Risk adverse)Required: (Show all your calculations) (Ignore initial investment of 540,000)a. Which choice of investment would Ryan prefer; Shares of Tesla or Apple?

Share- It is a unit of ownership in a company's capital. It entitles the stockholder to an equal…

Answered: QUESTION 6 Part A Ryan is a risk…

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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Problem 15-12 (Static) Suppose you think Appx stock is going to appreciate substantially in value in the next year. Say the stock's current price, So, is $100, and the call option expiring in one year has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 to invest, you are considering three alternatives: a. Invest all $10,000 in the stock, buying 100 shares. b. Invest all $10,000 in 1,000 options (10 contracts). c. Buy 100 options (one contract) for $1,000 and invest the remaining $9,000 in a money market fund paying 4% interest annually. Required: a. Calculate the value of the investment for stock price one year from now? (Leave no cells blank - be certain to enter "0" wherever required.) a. All stocks (100 shares) b. All options (1,000 options) c. Bills + 100 options X Answer is complete but not entirely correct. $ $ $ $80 8,000 0 9,360 $ $ $ Price of Stock 1 Year from Now $100 $110 10,000 0 9,360 $ $ $ 11,000 1,000 10,360 $120 $ 12,000 $ 1,000 $ 11,360
Unit Activity: Mathematical Models and Investments Each question is worth four points. Part A Ralph wishes to protect his investment from Inflation. He buys a zero-coupon bond. Why is this investment a bad choice for Ralph? BIUX² X₂ 15px Space used (includes formatting): 0 / 15000 Space used (includes formatting): 0/ 15000 !!! O IWI ויוי 三三図 ▼ 田く Part B Allison buys a Greek Treasury bond. The Greek government announces that it is defaulting on its debt. What options does Allison have to recover her money? BIUX² X₂ 15px A A 注三三三三 8 of 11 O Apr 15 5:46 Save & Ex PI
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Bill buys $500 worth of the T-bill. O Bill invests $1000 in the risky portfolio. Bill borrows $250 at the risk free rate. QUESTION 13 portroll Which of the following statements is correct? O All portfolios on the capital allocation line have the same Sharpe ratios O Short selling the risk-free asset is equivalent to lending money at the risk free rate O In a portfolio, asset weights must sum up to 0 O the capital allocation line is downward sloping QUESTION 14
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S2.9978 QUESTION 10 What are the trades that you need to execute in order to profit from the arbitrage opportunity? O Sell the call, buy the put, short the stock and invest $98.5 for 5 months at 3%. O Buy the call, sell the put, buy the stock and borrow $98.5 for 5 months at 3%. O Buy the call, sell the put, short the stock and invest $98.5 for 5 months at 3%. O Sell the call, buy the put, buy the stock and borrow $98.5 for 5 months at 3%. O No arbitrage profit exists because the call is properly valued. QUESTION 11 6.6 A European put option with strike $100 expiring in 5 months is priced at $3.15. The underlying is a dividend paying stock, currently priced at $103.55. The stock is expected to pay dividends of $0.85 in 2 and 6 months. The risk-free rate is 3% per year. What is the price of a 5 month European call option with strike $100? O $4.6035 O $7.0965 O $3.7469 O $5.4409 O $1.8337 6,67 po QUESTION 12 Click Save and Submit to save and submit. Click Save All Answers to save all…
#24 investment Let's assume that you're thinking about buying stock in West Coast Electronics. So far in your analysis, you've uncovered the following information: The stock pays annual dividends of $4.97 a share indefinitely. It trades at a P/E of 10.5 times earnings and has a beta of 1.19. In addition, you plan on using a risk-free rate of 5.00% in the CAPM, along with a market return of 11%. You would like to hold the stock for 3 years, at the end of which time you think EPS will be $7.91 a share. Given that the stock currently trades at $57.97, use the IRR approach to find this security's expected return. Now use the dividend valuation model (with constant dividends) to put a price on this stock. Does this look like a good investment to you? Explain.
D Question 20 1 pts You own $75,000 worth of stock, and you are worried the price may fall by year-end in 6 months. You are considering using either puts or calls to hedge this position. Given this, which of the following statements is (are) correct. L One way to hedge your position would be to buy puts. IL. One way to hedge your position would be to write calls. I.I f major stock price declines are likely, hedging with puts is probably better than hedging with short calls. lonly O l only O , I, and II O land III only
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¥ Question Completion Status: QUESTION 3 Mr. Adel Owns 200 sahres in XYZ LTD. ahe fears that the price might decline next montha and he wants to make a hedge against this risk. What option shall he byu? O 1. Future Option O 2. Call option 3. Forward Option 4. Put option QUESTION 4 The risk that the due to global warming there might be hurricane in Bahrain. This is risk is part of - O 1. Enterprise risk management 2. Financial risk management 3. Speculative risk amangement 4. General risk amangement Click Save and Submit to save and submit. Click Save All Answers to save all answers.

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