An insider purchased a stock prior to the IPO for $10 a share. Once public, the stock
Question:
An insider purchased a stock prior to the IPO for $10 a share. Once public, the stock runs up to $55 a share but the insider cannot sell the stock for a year. Since put and call options exist, the individual decides to construct a collar for protection from a possible decline in the price of the stock. Information concerning the options is as follows:
a) Describe the position you establish.
b) Verify that the position achieves its objective by determining the profit/ loss profile on the collar if the price of the stock rises to $60, remains at $55, or declines to $40.
c) Why does the position work (i.e., why does it achieve itsobjective)?
Put Call $55 $55 $3.00 $3.00
Step by Step Answer:
a It is the ideal execution of a collar because there is no cash outflow Since the purpose of t...View the full answer
Related Video
Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
Students also viewed these Accounting questions
-
You are considering some put and call options and have available the following data: a. Comparing the two calls, should DEF sell for more or less than ABC? Why? b. What is the time value for ABC? c....
-
Why do put and call options have expiration dates? Is there a market for options that have passed their expiration dates?
-
Price the 230 day put and call options with a strike price of $115 over a stock currently trading at $113.47, which is expected to pay a dividend in 17 days time of $2.68 and another dividend in 198...
-
A palindrome is a string that is the same backward as it is forward. For example,tot and otto are rather short palindromes. Write a program that lets a user enter a string and that passes to a bool...
-
The Focus on Fraud feature "Examples of Fraud in Inventory" provides examples of how clients may fraudulently manipulate inventory amounts. List at least five such examples explain why even a...
-
The following exercises are of mixed variety. Factor each polynomial. kq - 9q + kr - 9r
-
An external torque \(M_{t}(t)=M_{t 0} \cos \omega t\) is applied at the free end of a fixed-free uniform shaft. Find the steady-state vibration of the shaft.
-
FDE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra-large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed...
-
13. Now two forces are applied to the cart with two different spring scales as shown below. The spring scale FA still reads 10.5 N. FB The cart now moves toward the right with an acceleration toward...
-
Explain the four steps of the closing process given the following Dec. 31 ending balances, before closing: Fees Earned $200 Rent Expense. 100 Advertising Expense.. 60 J. Rice, Capital 3,000 J. Rice,...
-
As an executive, you received stock options that you recently exercised. However, you cannot legally sell the stock for the next six months. Currently the stock is selling for $38.25. A call to buy...
-
1. Which strategy works best if a bidding war erupts? 2. Which strategy works best if the hostile takeover is defeated? 3. Which strategy works best if the original offer price becomes the final...
-
If we made a LineweaverBurk plot of an irreversible inhibitor, which type of reversible inhibition would it be most likely to resemble?
-
Consider the following static layered fluid configuration: NOT TO SCALE D Not to scale Fluid A is water (p = 1000 kg/m), fluid B is engine oil (p = 884.1 kg/m), fluid C is a liquid having specific...
-
This example is valuable in emphasizing the restrictions that surround the derivation and the meaning of the stationary condition. Exercises 7 and 8 exam- ine the conditions for the pathological...
-
A pressurized cast iron cylinder shown in below figure is used to hold pressurized gas at a static pressure of 10 MPa. The cylinder is permanently joined to a low-carbon-steel cylinder head by bolted...
-
Q3) Solve the differential equation given below. Uxx + Uyy = 6y u(0, y) = y(b - y) u(a, y) = 0 u(x,0) = 0 u(x, b) = 0
-
49. Given the following air sample data, calculate the gross activity airborne concentration in Ci/em": frisker bkg = 200 cpm air sample volume = 60 ft 1 Ci 2.22 x 10 dpm gross count rate on filter =...
-
Think of at least one example of a change to the economy that will lead to the following outcomes and illustrate your answers with an AD-AS graph. a. Output increases and the price level increases....
-
Why is disclosure of depreciation or amortization methods and rates so important?
-
Data movement requires that data be moved from a source to a destination. What are the practical issues that a designer must be aware of when implementing a data move instruction?
-
Your firm is considering two one-year loan options for a $500,000 loan. The first carries fees of 2% of the loan amount and charges interest of 4% of the loan amount. The other carries fees of 1% of...
-
Your firm has tangible assets of $100 million. You are planning to acquire a firm that is half your firm's size. You have bonds with a merger & acquisition covenant that requires the combined firm to...
-
Braxton Enterprises currently has debt outstanding of $35 million and an interest rate of 8%. Braxton plans to reduce its debt by repaying $7 million in principal at the end of each year for the next...
-
Do you think Google Corporation is a "monopoly" or is violating antitrust "unfair competition" rules/laws? (Google currently has about 89 percent of the U.S. search engine market, with Bing having...
-
1. Where are you on Maslow's hierarchy? Explain your answer. 2. Explain self-determination/cognitive evaluation theory (for this question, assume they're basically the same thing) giving a personal...
-
Select a participant (colleague, family member, or friend) that you would like to receive feedback from. Use the information from the table to plan a two-way, open, and evaluative feedback session as...
Study smarter with the SolutionInn App