1. You decide to invest your entire $500 by purchasing the equities. After 1 mon
ID: 2749431 • Letter: 1
Question
1. You decide to invest your entire $500 by purchasing the equities. After 1 month the stock price goes down to $85 and you liquidate liquidate your position? What is your profit?
2. You decide to invest your entire $500 by purchasing the equities. After 1 month the stock price goes down to $85 and you liquidate liquidate your position? What is your Holding Period Return?
3. You are bullish on a particular security and have $500 to invest. The stock is trading for $100. Call options with a strike price of $100 are trading for $1.00. You decide to invest your entire $500 by purchasing call options. How many options contracts can you purchase?
4. You are bullish on a particular security and have $500 to invest. The stock is trading for $100. Call options with a strike price of $100 are trading for $1.00. You decide to invest your entire $500 by purchasing call options. After 1 month the stock price goes up to $115 and you liquidate liquidate your position? What was your profit?
Explanation / Answer
You decide to invest your entire $500 by purchasing the equities. After 1 month the stock price goes down to $85 and you liquidate liquidate your position? What is your profit?
Suppose price was $100 and we invest $500
Number of equities = 500/100 = 5
Loss = 100-85 = 15*5 =($75)
You decide to invest your entire $500 by purchasing the equities. After 1 month the stock price goes down to $85 and you liquidate liquidate your position? What is your Holding Period Return?
Holding Period Return =Income + (End of Period Value – Initial Value) / Initial Value
HPR = -75+(425-500)/500 =-30%
3. You are bullish on a particular security and have $500 to invest. The stock is trading for $100. Call options with a strike price of $100 are trading for $1.00. You decide to invest your entire $500 by purchasing call options. How many options contracts can you purchase?
Options contracts = 500/100 = 5 contracts
4. You are bullish on a particular security and have $500 to invest. The stock is trading for $100. Call options with a strike price of $100 are trading for $1.00. You decide to invest your entire $500 by purchasing call options. After 1 month the stock price goes up to $115 and you liquidate liquidate your position? What was your profit?
Breakeven Stock Price = Call Option Strike Price + Premium Paid = 100+1 =101
Call Option Profit/Loss = Stock Price at Expiration - Breakeven Point
Call Option Profit = 115-101 = $14
TreesNeville Corporation, an amusement park, is considering
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.