33. You purchase one IBM March 120 put option contract for a premium o share. Th

Question

33. You purchase one IBM March 120 put option contract for a premium o share. The maximum profit that you could gain from this strategy is $120 A) B) $1,000 C) S11,000 D) $12,000 34. A recent study by Barber and Odean find that active trading often leads portfolio performance. In their own words, "Cover) This result is probably due to the fact that A) active traders are B) C) active traders use fundamental analysis D) active traders are more likely to make forecasting to poor to your wealth". trading is hazardous ikely to be overconfident about their trading ability active traders use technical analysis stock with a current market price of $30 per share just paid a dividend of ends are expected to grow indefinitely at 5% per year. what is $2 per 35. A share. Divid rate of return? A) B) C) D) E) the required 5% 6.6700 11.67% 12% 13.51%

Explanation / Answer

34.

Price of IBM stock = $120;

Put option price = $10.

Each contract is worth 100 shares.

Since this is a put option, the maximum profit from one contract is achieved when the price of the stock falls to $0.

Profit when stock price falls to $0 is (120 - 10 - 0); 10 is the price of the put option bought

profit per share = $110

Profit per contract = $110 * 100 = $11,000

Answer is option C.

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