The share price of TENAGA is RM400 per share, while the call option is RM50 per contract with the exercise price of RM405. When an investor buys the call option, he/she is entitled to purchase TENAGA share at RM405 per share. Ahmad has only RM400 to invest and believes that the share price is likely to increase significantly in the near future. What are his profit and the rate of return of his investment if he invests all his money in :

shares?

options?

Compare the leverage level of both of the investment as in (i) and (ii).

Answer rating: 100% (QA)

1 He will be able to purchase with one share and he can hold this shares for unlimited period of tim... View the full answer