Compare and contrast the size of potential payoff

Reference no: EM13130763

You strongly believe that the price of Brenner Inc. stock will rise substantially from its current level of 137, and you are considering buying shares in the company. You havce 13,700 to invest. As an alternative to purchasing the stock itself, you are also considering buying call options on Brenner stock that expires in three months and have an exercise price of 140. These call options cost 10 each. a. compare and contrast the size of the potential payoff and risk involved in each of these alternatives. b. calculate the 3 month rate of return on both strategies assuming that at the option expiration date Brenners' stock price has 1. increased to 155 2. decreased to 135.

Reference no: EM13130763

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