Royal Bank (RBC) is currently trading for $84.10. You believe that RBC will release its annual report at on January 19^th, 2024. It is your belief that the company will beat the market's expectations for profits and revenues by a significant amount. Therefore, you expect that RBC's stock price on January 21st, 2024 to be $95.00 per share. Your expectation is that the lowest RBC's stock price will be on January 21st, 2024 is $75.00. You believe it is possible that RBC could be trading for as much as $105.00 on January 21^st, 2024. 

You are contemplating doing one of the following strategies. 

Strategy One: You buy one share of RBC stock and sell it on January 21st, 2024.

Strategy Two: Buy a Call Option on RBC stock with an exercise price of $85. The option costs $6.90. The option expires on January 21st, 2024. 

Strategy Three: Buy the stock for $84.10. Sell a Call Option on RBC stock with an exercise price of $85. You receive $6.90 from the sale of the call option. The option expires on January 21st, 2024.

Strategy Four: Buy a Call Option on RBC stock with an exercise price of $85.00. The option costs $6.90. Sell a Call Option on RBC stock with an exercise price of $95.00. The option can be sold for $3.03. Both options expire on January 21st, 2024. 

For each strategy you are to calculate the maximum profit per share, maximum loss per share and break-even stock price. 

	Maximum Loss Per Share	Maximum Profit Per  Share	Break-even Stock Price
Strategy One
Strategy Two
Strategy Three
Strategy Four

 

In addition, you are to calculate the rate of return on each strategy assuming the stock price on January 21st, 2024 was $75.00, $95.00 and $105.00

Rate of Return on each strategy for a given stock price on January 21st, 2024

	$75.00	$95.00	$105.00
Strategy One
Strategy Two
Strategy Three
Strategy Four

Answer rating: 100% (QA)

To evaluate each of the four strategies lets calculate the maximum loss per share maximum profit per share breakeven stock price and the rate of retur... View the full answer