99. You purchase one IBM July 132 call contract for a premium of $11. You hold t

Question

99. You purchase one IBM July 132 call contract for a premium of $11. You hold the option until the expiration date, when IBM stock sells for $137 per share. You will realize a ______ on the investment.           a. $500 loss        b. $600 loss      c. $600 profit      d. $500 profit

93. You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends.

What is the geometric average return for the period?

a. 2.11%    b. 1.59%     c. 1.06%     d. .79%

96. The market capitalization rate for Admiral Motors Company is 8%. Its expected ROE is 14% and its expected EPS is $7. If the firm’s plowback ratio is 40%.

Year Beginning of
Year Price # of Shares
Bought or Sold 2008 $125           300bought 2009 $130           250bought 2010 $126           275sold 2011 $129           275sold

Explanation / Answer

Answeer 99

Option Pay off => 137 -132 => $5

Option Profit => 5 -11 => 6

So Profit => 100 * 6 => $ 600 Profit ie option C

Answer 93

(130 -125 ) /125 => 4% , (126 - 130) / 130 => -3.08%, (129- 126) / 126 => 2.38%

Geometric return => [ ( 1 +4%) ( 1+ (-3.08%) ) ( 1 + 2.38%) ]1/3 -1

Geometric return => 1.054% or 1.06%

Option C

Answer 96

Growth => 14% * 40% => 5.6%

Expected dividend => 7 * (1 - 40%) => 4.2

Price => 4.2/ (14% - 5.6%) => 50

PE Ratio => 50 / 7

PE Ratio => 7.14

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