What is the maximum loss can incur from the call

Assignment Help Financial Management
Reference no: EM131359415

Eric owns 100 stocks of Virginia company with a cost of $35 a stock. The stock is currently trading at $54 a share. Eric believes the price of Virginia will fall to $45 a stock in the near future but over the longer term of 3 to 5 years, increase in value to $75 a stock. Being an intelligent investor, Eric would like to benefit from the expected near term decline if it occurs. Therefore, Eric writes a covered call at a strike price of $55 and a premium of $2 (each call contract has 100 stocks)

(a) How will the covered call help profit if the expected price decline occurs?

(b) What is the maximum loss can incur from the call?

(c) What is the maximum profit Eric can incur from the call?

Reference no: EM131359415

Questions Cloud

Develop a gross requirements plan for item c : Given the product structure, master production schedule, and inventory status in Figure on the next page and assuming the requirements for each BOM item is 1: Develop a gross requirements plan for Item C
Organization for innovation and depth of knowledge : When it really comes down to it, managing an organization for innovation and depth of knowledge has to do with Absorptive Capacity. Discuss this comment from the perspective of the individual and the organization, the role of prior knowledge and t..
What are the risks associated with non-compliance : Choose an organization you are familiar with, and choose one of the legal and regulatory requirements that was mentioned in this unit. Briefly explain the requirement. Why is it of specific importance to the organization you chose? What are the ri..
What levels of the hierarchy of controls : What levels of the hierarchy of controls are most applicable to system safety? Are any levels not useful when applying system safety? Provide one or more examples that support your response. Your response must be at least 75 words in length.
What is the maximum loss can incur from the call : Eric owns 100 stocks of Virginia company with a cost of $35 a stock. The stock is currently trading at $54 a share. Eric believes the price of Virginia will fall to $45 a stock in the near future but over the longer term of 3 to 5 years, increase in ..
Safety principles not used by all safety professionals : Why are system safety principles not used by all safety professionals? Suggest some ways to overcome the obstacles to wider adoption of system safety. Your response must be at least 75 words in length
Statement for current organization : Compose a safety policy statement for your current organization (or an organization for which you previously worked), following the guidelines in the course textbook. Be certain it is specific to the organization and not just a series of generic s..
Starbucks treasurer do to hedge prospective transaction : Starbucks is considering buying 100 tons of coffee. The current price of one coffee ton is $20,000. The amount is due in six months from today. The 6-month forward price of the coffee ton is $22,000. What should Starbucks treasurer do to hedge his pr..
Discuss the type of person you consider yourself : Discuss the type of person you consider yourself to be in a team (from team roles), moreover discuss about special situation that you have had come across in a team and how you had manage the given situation.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Initial investment in net working capital-what bid price

Romo Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. You also need an initial investment in net working cap..

  Calculate the book value per share and earnings per share

You are given the following information for Smashville, Inc. Cost of goods sold: $ 209,000 Investment income: $ 2,100 Net sales: $ 392,000 Operating expense: $ 90,000 Interest expense: $ 7,400. Calculate the book value per share, earnings per share, ..

  What are your after tax mortgage payments

You have decided to issue a 30 year fixed rate conventional mortgage to the bank to finance the purchase of a $300,000 home. You are required to make a 20% down payment. The mortgage rate in 5% per year. You will make payments monthly. Please use Exc..

  What stock prices will you break even on the straddle

You establish a straddle on Walmart using September call and put options with a strike price of $51. The call premium is $4.30 and the put premium is $5.05. What is the most you can lose on this position? what stock prices will you break even on the ..

  1 assume that you were a manager of a large department in a

1. assume that you were a manager of a large department in a company and you received a request from your supervisors

  What is the value at date of perpetual stream

Given an interest rate of 5.2 percent per year, what is the value at date t = 5 of a perpetual stream of $3,600 payments that begins at date t = 10? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Exhibited standard deviation in stock returns

Stock A has exhibited a standard deviation in stock returns of 0.5, whereas Stock B has exhibited a standard deviation of 0.6. The correlation coefficient between the stock returns is 0.5. What is the variance of a portfolio composed of 70 percent St..

  What is the present value of your winnings

You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 32 annual payments of $160,000, with the first payment being delivered today..

  Estimate the likely standards of value creation

Looking out over the next decade, estimate the likely standards of value creation. How would you advise a company like IBM or Cisco to configure and coordinate its value chain to prosper in this environment? Would you give the same advice to a compan..

  What is the stock price for each of the stocks

Consider the following three stocks: a. Stock A is expected to provide a dividend of $11.90 a share forever. b. Stock B is expected to pay a dividend of $6.90 next year. Thereafter, dividend growth is expected to be 2% a year forever. what is the sto..

  Firm projected cash flow budget

Explain how financial ratio analysis of a firm’s projected cash flow budget could be efficiently used by its managers for financial planning. (b) Explain why creating budgets and other financial planning is an important part of business planning.

  What are the fixed costs of hamburger production

In a slow year, Deutsche Burgers will produce 2.9 million hamburgers at a total cost of $4.3 million. In a good year, it can produce 4.9 million hamburgers at a total cost of $5.5 million. What are the fixed costs of hamburger production? What is the..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd