Financial advisor Joseph Laterreur recommends to his client Fatima, who is willing to assume relatively high risk, the following investment strategy regarding the stock of Moderna Inc. (ticker: MRNA): purchase 12 put option contracts at a unit price of $23 USD (i.e. $2,300 USD per contract) and purchase of 1,200 shares at a unit price of $160 USD. The put options offered expire in April 2022 and their strike price is $160 USD. The financial analyst at the brokerage for which Laterreur works estimated the following probability distribution for the possible prices of Moderna Inc.'s stock on the options' expiration date: Probability Price 0.25 $30 0. $35,240 $0.40,300

 a) Calculate the maximum loss that Fatima could suffer by following the recommendation of Advisor Laterreur and in what situation will she incur this loss. What is theoretically the maximum possible gain? (1.50 points) 

b) What are the expectations of the advisor: Laterreur and the financial analyst of his firm concerning the action of Moderna Inc. over the coming months? (1 point) 

c) What is the main advantage and the main disadvantage of the investment strategy recommended by Advisor Laterreur? (1 point) 

d) Calculate the expected return and standard deviation of Moderna's stock rate of return over the next few months. (1.50 points)

e) Advisor Laterreur told Fatima during a Zoom meeting that the investment strategy he recommends has an expected return that exceeds 30% and zero risk. Is he right to think this way? In order to help Fatima make an informed decision, calculate the expected return and the risk (standard deviation) of the investment strategy proposed by this advisor? 

Answer rating: 100% (QA)

Lets break down the questions one by one a Maximum loss and maximum possible gain Maximum loss This occurs if the stock price falls to 0 In this case ... View the full answer