How the investor profit or loss varies with the stock price

Assignment Help Financial Management
Reference no: EM131446734

The price of a stock is $40. The price of a 1-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a 1-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. Draw a diagram illustrating how the investor’s profit or loss varies with the stock price over the next year. How does your answer change if the investor buys 100 shares, shorts 200 call options, and buys 200 put options?

(Don't forget the diagram )

Reference no: EM131446734

Questions Cloud

We covered a lot of material over the past several weeks : We covered a lot of material over the past several weeks. For your discussion forum for this week simply let me know your thoughts on what was the most important concept or concepts that you learned from Finance 300.
Financial analysis project : The Company that you work for has excess capital that needs to be invested. Because you have knowledge of managerial finance, the top management team of the organization has given you the assignment to conduct a thorough financial analysis on a publi..
Company incentive plan does not have guaranteed wage : A worker is paid the day-work rate if she earns less than 100% incentive premium. The standard for producing a certain part is 85 units per hour. The operator completes 140 good parts. What are her earned hours? What would her pay for this time perio..
Peng plasma pricing : Peng Plasma Pricing. Peng Plasma is a privately held Chinese business. It specializes in th manuifacture of plasma cutting torches. Over the past eight years it has held the Chinese renminbi price of the PT350 cutting torch fixed at Rmb 17.300 per un..
How the investor profit or loss varies with the stock price : The price of a stock is $40. The price of a 1-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a 1-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an inv..
What is the maximun amount he can accumulate at time : Mr Valdez has $10,000 to invest at time t=0, and three ways to invest it. Investment account I is governed by compound interest with an annual effective discount rate of 3%.Investment account II has force of interest equal to. Investment account III ..
About the investment worth : Cristiana uses $25,000 to purchase a 25 month CD (certificate of deposit) that pays 2.47% compounded monthly. What is her investment worth at the end of 25 months? How much interest did she earn?
What is the duration of a two-year bond : What is the duration of a two-year bond that pays an annual coupon of 11.9 percent and has a current yield to maturity of 13.9 percent? Use $1,000 as the face value. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent?
Strength and weaknesses of company sales-profitability : Choose a publicly traded company. Download the latest available financial reports (balance sheet, income statement, statement of cash flows, and statement of owners' equity). What is your overall opinion about the strength and weaknesses of this comp..

Reviews

Write a Review

Financial Management Questions & Answers

  Cost is the company uses cumulative voting

The shareholders of the Stackhouse Company need to elect seven new directors. There are 880,000 shares outstanding currently trading at $48 per share. You would like to serve on the board of directors; unfortunately no one else will be voting for you..

  Considering buying corporate bond

An investor is considering buying a 20-year corporate bond. The bond has a face value of $1000 and pays 6% interest per year in two semiannual payments. THus the purchaser of the bond will receive $30 every 6 months in addition to $1000 at the end of..

  Included in current assets

Which of the following items is NOT included in current assets?

  Estimate chf cash flows

A project in Hong Kong costs Hong Kong dollar (HKD) 200,000 and produces cash flows of HKD 75,000 per year for five years. -estimate CHF cash flows, and calculate the project NPV in CHF.

  Projected to remain at that level for the foreseeable future

Consider a firm with a debt-equity ratio of 0.40. The required rate of return on this firm’s unlevered equity is 18% and the pre-tax cost of debt is 8%. Sales, which totalled $34 million last year, are projected to remain at that level for the forese..

  What was the company profit margin

Prince Albert Canning PLC had a net loss of £28,382 on sales of £494,162. What was the company’s profit margin? In dollars, sales were $700,266. What was the net loss in dollars?

  Bond valuation and yield to maturity and future price

Callaghan Motors' bonds have 20 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 10.5%, and the yield to maturity is 11%. What is the bond's current market price? Round your answer to t..

  Disregard flotation costs

Wallace Container Company issued $100 par value preferred stock 10 years ago. The stock provided a 6 percent yield at the time of issue. The preferred stock is now selling for $62. What is the current yield or cost of the preferred stock? (Disregard ..

  How can macys corporation apply cultural change

How can Macy's corporation apply cultural change to the organization to improve overall growth of the company as a whole?

  The risk free rate problem

Suppose the risk free rate is 5%, and the risk premium is 8%, and a stock has a beta of 1.5. If the stock market is down 10% for a given year, we would expect the stock to be:

  Impact on eps if new shares are issued to fund the centre

Brown needs to raise $500,000 to construct the new amusement centre. Assuming the company can issue new shares at the current market price, what is the impact on EPS if new shares are issued to fund the centre?

  What weight should you use for debt in the computation

OMG Inc. has 6 million shares of common stock outstanding, 5 million shares of preferred stock outstanding, and 7,000 bonds. Suppose the common shares are selling for $29 per share, the preferred shares are selling for $28 per share, and the bonds ar..

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