Question: 1 Problem 2 (25 points) 2 You just bought 200 shares of Ford stock for $5 a share. You do not anticipate the stock price

1 Problem 2 (25 points) 2 You just bought 200 shares of Ford stock for $5 a share. You do not anticipate the stock price of Ford to change over 3 the course of next year. You have acquired shares because Ford pays large dividends. Given this view you decide 4 to enter an option position to further increase your income. Assume that the excercise price is $5 a share for both 5 put and call; call price is $0.85 a share and put price is $0.75 a share. Assume that options expire in 1 year and 6 can only be exercised on expiration date. 8 (a) What is your decision? Pick only one position and indicate the number of contracts for that position. (7 points) Number of Contracts ber of Contracts 10 Positions 11 Buy Call 12 Sell Call 13 Buy Put 14 Sell Put 16 Given your choice in part a answer parts b, c and d about the combined position in option and stock. 18 (b) What is your total profit per share if the stock price increases to $7 a share at expiration? (6 points) 25 (c) What is your total profit per share if the stock price declines to $0 a share at expiration? (6 points) 30 (d) What is your total profit or loss per share if the stock price remains at $6 a share at expiration? (6 points)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

1 Problem 2 (25 points) 2 You just bouglt 200 shares of Ford stock for $5 a share. You do not anticipate the stock price of Ford to change over 3 the course of next year. You have acquired shares...

23. Which of the following benefits provided by an employer to its employees is taxable? A Employees of the Walmart Store are allowed a 40% discount, Employer's gross profit is 20% Undergraduate...

Assignment 1 Instructions Assignment 1 should be submitted after you have completed Unit 2. This assignment is worth 15 percent of your final grade. Assignment 1 contains five problems. The maximum...

Problem 2 (25 points) On 1/1/20x1, Living Technologies Company purchased an investment in the voting common stock of Home Solutions, Inc. for $100,000 cash. With its investment, Living Technologies...

PT KFC Statement of Profit or Loss for the years Ended 31 December 2020 (internal estimation) and 2019 Sales COGS Gross Profit SGA Expense Operating income Interest income Interest expense Other...

Need Assistance with questions and how to use a financial calculator to solve the questions 1. Holding-Period Returns a. Last year Marla purchased 100 shares of stock for $ 8 per share. She paid a...

A MIL + Q Part 1: Multiple choices ALL 20 questions are compulsory and MUST be attempted (40 marks). Each question is worth 2 marks. Please also explain briefly and show your calculation process when...

The Covid-19 coronavirus pandemic has suddenly triggered a global health crisis, large numbers of human lives continues to be tragically lost until today. There is still deep uncertainty on how the...

PLEASE ANSWER ALL THE QUESTIONS... PLEASE 1. Liza has Php250,000 and she wants to invest it for 189 days. She has two options: Option A: invest in an account that pays 4% simple interest rate Option...

An employee, Ross, was an operator of heavy equipment in a sand and gravel operation. His performance was adequate for most of the 5 year period during which he worked for his employer. The operation...

Logi Service Limited started operations on January1,2020,providing a range of logistical services to clients. The company was set up with a total of400,000share capital funding, with300,000being...

Concerning the profitability index: 1. Describe how the profitability index is calculated and describe the information this measure provides about a sequence of cash flows. What is the profitability...

Add "Viggo Mortenslet cast = new Map ( ) ;en " to the cast as the key, with value "Aragorn".