Homework Answers
Downside protection can be bought by buying at the money put option with underlying as Costco Stock,
Premium will be paid on buying put option which will work as insurance if stock price goes down and effectively hedge the downside of the stock.
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15. You own a share of Costco stock. You are worried that its price will fall...
You currently own stock in Wayne Enterprises. You are worried that the stock will fall in...
You currently own stock in Wayne Enterprises. You are worried that the stock will fall in the near term due to risky lifestyle choices of its CEO. You do not want to sell the stock, but would like to insure against a sudden drop in the stock's value. How could you achieve this outcome using options? A. write a put B. options cannot help you protect your portfolio C. purchase a put ОО D. purchase a call
You currently own stock in Wayne Enterprises. You are worried that the stock will fall in...
You currently own stock in Wayne Enterprises. You are worried that the stock will fall in the near term due to risky lifestyle choices of its CEO. You do not want to sell the stock, but would like to insure against a sudden drop in the stock's value. How could you achieve this outcome using options?
You are bullish on Pharma stock. The current market price is $60 per share, and you...
You are bullish on Pharma stock. The current market price is $60 per share, and you have $3,000 of your own to invest. You borrow an additional $3,000 from your broker at an interest rate of 5% per year and invest $6,000 in the stock. a. What will be your rate of return if the price of Pharma stock goes up by 15% during the next year? b. How far does the price of Pharma stock have to fall for...
You own 1,000 shares of stock in Armstrong Corporation. You will receive a $2.70 per share...
You own 1,000 shares of stock in Armstrong Corporation. You will receive a $2.70 per share dividend in one year. In two years, Armstrong will pay a liquidating dividend of $46 per share. The required return on Armstrong stock is 15 percent. What is the current share price of your stock (ignoring taxes)? If you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends.
You own 1,000 shares of stock in Company K. You will receive a $2.50 per share...
You own 1,000 shares of stock in Company K. You will receive a $2.50 per share dividend in one year. In two years, Company K will pay a liquidating dividend of $55 per share. The required return on its stock is 12%. a) What is the current share price of your stock (ignoring taxes)? b) If you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends.
You own 1,000 shares of stock in Avondale Corporation. You will receive $3.115 per share cash...
You own 1,000 shares of stock in Avondale Corporation. You will receive $3.115 per share cash dividend in one year. In two years, the company will pay a liquidating dividend of $57 per share. The required return on the company’s stock is 15 percent. What is the current price of your stock? (Ignore taxes). If you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends (Hint: dividends...
The current market price of a stock is $40 per share, and you have $8,000 of...
The current market price of a stock is $40 per share, and you have $8,000 of your own to invest. You borrow an additional $8,000 from your broker at an interest rate of 4.0% per year and invest $16,000 in the stock. a.) What will be your rate of return if the price of the stock goes up by 6.0% during the next year? b.) How far does the price of the stock have to fall for you to get...
You are bullish on Telecom stock. The current market price is $50 per share, and you...
You are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker and invest $10,000 in the stock How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 35%? Assume the price fall happens immediately. Round your answer to two decimal places and enter the number without the...
You sold short 100 shares of Apple stock at a price of $140 per share. What...
You sold short 100 shares of Apple stock at a price of $140 per share. What is the worst that can happen to you and how can you protect yourself?
You are bullish on Telecom stock. The current market price is $80 per share, and you...
You are bullish on Telecom stock. The current market price is $80 per share, and you have $8,000 of your own to invest. You borrow an additional $8,000 from your broker at an interest rate of 9.0% per year and invest $16,000 in the stock. a. What will be your rate of return if the price of Telecom stock goes up by 11% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.) Rate of...
You currently own stock in Wayne Enterprises. You are worried that the stock will fall in the near term due to risky lifestyle choices of its CEO. You do not want to sell the stock, but would like to insure against a sudden drop in the stock's value. How could you achieve this outcome using options? A. write a put B. options cannot help you protect your portfolio C. purchase a put ОО D. purchase a call
You own 1,000 shares of stock in Armstrong Corporation. You will receive a $2.70 per share dividend in one year. In two years, Armstrong will pay a liquidating dividend of $46 per share. The required return on Armstrong stock is 15 percent. What is the current share price of your stock (ignoring taxes)? If you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends.
You own 1,000 shares of stock in Company K. You will receive a $2.50 per share dividend in one year. In two years, Company K will pay a liquidating dividend of $55 per share. The required return on its stock is 12%. a) What is the current share price of your stock (ignoring taxes)? b) If you would rather have equal dividends in each of the next two years, show how you can accomplish this by creating homemade dividends.
You are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker and invest $10,000 in the stock How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 35%? Assume the price fall happens immediately. Round your answer to two decimal places and enter the number without the...
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