Suppose you have $48,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $80 per share. You also notice that a call option with a $80 strike price and six months to maturity is available. The premium is $4. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $88 per share? What about $76 per share?- Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. $88 per share $76 per share > Answer is not complete. Annualized Return Option Stock 21.00 % -9.75 % % %

Suppose you have $48,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $80 per share. You also notice that a call option with a $80 strike price and six months to maturity is available. The premium is $4. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $88 per share? What about $76 per share?- Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. $88 per share $76 per share > Answer is not complete. Annualized Return Option Stock 21.00 % -9.75 % % %

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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Assume you plan to invest a one-lump sum of $25,000 in the stock market for the next 10 years at a 4.75% annual return but will only do this, if and only it, the amount at the end of 10 years equals $40,000. Would you make such investment? Use an Excel formula to support your answer.
Suppose you have $28,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You notice that a put option with a $40 strike is available with a premium of $2.80. Calculate your percentage return on the put option for the six-month holding period if the stock price declines to $36 per share. (Do not round intermediate calculations. Enter your 6-month return as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Percentage return %
Suppose that you plan to invest in stock A, because you believe that stock A will appreciate in the next 6 months. The stock current price is $100, and a call option on stock A expiring in 6 months has an exercise price of $100 selling at $15 per option. And you have $7500 in hand to invest the following three strategies: A: Invest entirely in stock A. B: Invest entirely in call option on stock A. C: Buy call options the amount of calls is same as the number of shares we purchase in strategy A, and invest the remaining money in T-bills at interest rate whose annual interest rate is 10%. Suppose that the possible stock price are $90, $100, $110, and $120. (a) At expiration (after 6 months), compute the rates of return for each strategy given different possible stock prices. We don't consider the premium we’ve paid for holding call options in this case. (b) Given different stock price at expiration, which strategy would you like to choose? For example, if the stock price is $90, which…
Suppose you think company Y’s share is going to appreciate substantially in value next year. The current share of company Y is $150. One call option of this company’s share expiring in one year is currently available at $15 with an exercise price of $150. With $150,000 to invest, you are considering three investment strategies: a. Invest all $150,000 b. Invest all $150,000 in options c. Buy 5,000 options and invest the remaining amount in treasury bills paying 5% annually What is the value of your portfolio and your rate of return for each strategy for the following share prices one year from now? Summarise your results in a table and draw a graph showing return for each alternative (Hint: show return on Y axis and share price on X axis). Share prices $130, $140, $150, $160 and $170
Please select the option that best analyzes the RETURN ON EQUITY for our example company. Return on equity tells us how well we have used our owners' investments to provide a return on their investment. Our investors require a return of 5%, so they would accept the return on equity for the year, since it is LESS than their return they accept to earn. Return on equity tells us how well we have used our owners' investments to provide a return on their investment. Our investors require a return of 5%, and they are content as the example company provided a return EQUAL to their expected return. Return on equity tells us how well we have used our owners' investments to provide a return on their investment. Our investors require a return of 5%, so they would accept the return on equity for the year. Return on equity tells us how well we have used our owners' investments to provide a return on their investment. Our investors require a return of 5%, so they would NOT ACCEPT the…
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.
The share price of your favourite company is currently traded at a price of £60 and interest is compounded continuously at rate 3.7% per year. Assume that the share evolves according to a discrete time LogNormal process with time measured in years, drift μ= 0.15 and volatility o = 0.24. You decide to buy a European call option with a strike price of £63 and an expiration date of two years from now. What is the no- arbitrage price for this option? State your answer to the nearest pence. Do not enter the pound sign.
Suppose that Kaka Plc currently is selling at $50 per share. You buy 900 shares using $22,050 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%. Required If the maintenance margin is 20%, how low can Kaka Plc’s price fall before you get a margin call? (Round your answer to 2 decimal places.)
The common stock of Triangular File Company is selling at $91. A 13-week call option written on Triangular File's stock is selling for $9. The call's exercise price is $101. The risk-free interest rate is 8% per year. a. Suppose that puts on Triangular stock are not traded, but you want to buy one. Which combination will produce the same results? Buy call, invest PV(EX), sell stock short Sell call, invest PV(EX), sell stock short Buy call, lend PV(EX), buy stock Sell call, lend PV(EX), buy stock b. Suppose that puts are traded. What should a 13-week put with an exercise price of $101 sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Put option price
You think that the stock of Fleetwood Corp is likely to rise within the next six months from its current price ($19.00 bid and $20.00 ask), and you want to maximize the amount of profit from your investment. So, you will use a margin account to borrow on margin in order to buy as many shares as you can. Your initial margin requirement is 45%, and you have $90,000 of your own money to invest in the shares. The minimum (maintenance) margin is 30%, and Fleetwood does not pay dividends. (Ignore interest for this problem.) If you buy Fleetwood on margin with the maximum margin loan, what is the maximum number of shares you can buy? Suppose you bought the maximum number of shares of Fleetwood as in (1). Assume that immediately after your purchase, Fleetwood’s share price drops to $18.00 per share. Calculate your new margin. Will you receive a margin call? How far can the price drop before you will receive a margin call? If the stock price falls to $14.00, you calculate that you would…
The share price of your favourite company is currently traded at a price of £60 and interest is compounded continuously at rate 3.7% per year. Assume that the share evolves according to a discrete time LogNormal process with time measured in years, drift µ = 0.15 and volatility o = 0.24. You decide to buy a European call option with a strike price of £63 and an expiration date of two years from now. What is the no-arbitrage price for this option? State your answer to the nearest pence. Do not enter the pound sign.

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