Suppose you have $20,000 to invest. You are considering

Miller-Moore Equine Enterprises (MMEE), which is currently selling for

$20 per share. You also notice that a call option with a $20 strike price and

six months to maturity is available. The premium is $2. MMEE pays no

dividends.

a. What is your annualized return from these two investments if, in

six months, MMEE is selling for $25 per share?

b. What about $18 per share? Suppose a dividend of $0.20 per share

is paid. Comment on how the returns would be affected.

c. Suppose a put option with a $24 strike is also available with a

premium of $5. Calculate your percentage return for the six-

month holding period if the stock price declines to $16 per share.