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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?
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How much money must you deposit into a savings account at the end of each year at 4% interest compounded annually in order to earn $9,778.08 interest during a 20-year period?
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Both Bond Sam and Bond DAve have 6.5% coupons, make semiannual parments and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. What does this problem tell you about the interest rate risk of longer-..
Alan and Brian contracted for Alan to mow Brian’s lawn once a week for 20 weeks, at a price of $20 per week. Three weeks later, Alan demands $25 per week to mow Brian’s lawn, and Brian agrees. Later, if Brian only pays Alan $20 per week and Alan sues..
How many U.S. dollars must be raised if payment is due today, is the dollar appreciating or depreciating against the yen? Explain - How many U.S. dollars must be raised if payment is due in 90 days?
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