Rick Thompson is considering the following two alternatives for investing in Davis Industries whose stock is now selling for $44 per share: 1) Either buy 500 shares of stock, or, 2) Buy four-month call options on the stock with an exercise price of 45 for a $3.25 call premium. If Rick purchases shares of stock, assuming no commissions or taxes, what is his annualized percentage rate of return if the stock reaches $50 in four months? If Rick purchases call options, assuming no commissions or taxes, what is his annualized percentage rate of return if the stock reaches $50 in four months?
Rick Thompson is considering the following two alternatives for investing in Davis Industries whose stock is now selling for $44 per share: 1) Either buy 500 shares of stock, or, 2) Buy four-month call options on the stock with an exercise price of 45 for a $3.25 call premium. If Rick purchases shares of stock, assuming no commissions or taxes, what is his annualized percentage rate of return if the stock reaches $50 in four months? If Rick purchases call options, assuming no commissions or taxes, what is his annualized percentage rate of return if the stock reaches $50 in four months?
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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Rick Thompson is considering the following two alternatives for investing in Davis Industries whose stock is now selling for $44 per share:
1) Either buy 500 shares of stock,
or,
2) Buy four-month call options on the stock with an exercise price of 45 for a $3.25 call premium.
If Rick purchases shares of stock, assuming no commissions or taxes, what is his annualized percentage
If Rick purchases call options, assuming no commissions or taxes, what is his annualized percentage rate of return if the stock reaches $50 in four months?
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