g. BABA is a volatile stock and its stock price is expected to fluctuate within ±+50% from itscurrent price level ($20). To avoid getting a marginal call, Jeremy can put more cash into hisbrokerage account when he first establishes the long position, i.e., his initial margin is largerthan the IMR which is at 50%. What is the initial margin such that he will never get a margincall? Assume the price drop happens immediately after he purchases the stock.

Given that BABA's stock price can fluctuate within ±50% from its current price level of $20, the…

Answered: g. BABA is a volatile stock and its…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 8P

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You think MBB stock has potential for an upward move in price. You have noposition whatsoever in the stock now. You would like to take opportunity of anyup movement in price but want to strictly limit your downside risk. MBB stock pricenow is RM 12.00. a. Given the information below, outline TWO possible appropriate strategies. Foreach strategy,• State the position• Graph the strategy• Outline the risk profile, and• State the maximum profit, maximum loss, and break-even point(s). 30-day calls 30-day put 11 call @ 1.55 11 put @ 0.25 12 call @ 0.70 12 put @ 0.45 12 call @ 0.22 13 put @ 1.40
1. You think MBB stock has potential for an upward move in price. You have no position whatsoever in the stock now. You would like to take opportunity of any up movement in price but want to strictly limit your downside risk. MBB stock price now is RM 12.00. a. Given the information below, outline TWO possible appropriate strategies. For each strategy, • State the position • Graph the strategy • Outline the risk profile, and • State the maximum profit, maximum loss, and break-even point(s). 30-day calls 30-day put 11 call @ 1.55 11 put @ 0.25 12 call @ 0.70 12 put @ 0.45 12 call @ 0.22 13 put @ 1.40 b. From a cost viewpoint, which is the best strategy? c. What are the recommended options strategies when you expect the markethas extreme (high) volatility?
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1. You think MBB stock has potential for an upward move in price. You have no position whatsoever in the stock now. You would like to take opportunity of any up movement in price but want to strictly limit your downside risk. MBB stock price now is RM 12.00. a. Given the information below, outline TWO possible appropriate strategies. For each strategy, • State the position • Graph the strategy • Outline the risk profile, and • State the maximum profit, maximum loss, and break-even point(s). 30-day calls 30-day put 11 call @ 1.55 11 put @ 0.25 12 call @ 0.70 12 put @ 0.45 12 call @ 0.22 13 put @ 1.40 b. From a cost viewpoint, which is the best strategy? explainc. What are the recommended options strategies when you expect the markethas extreme (high) volatility? explain
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As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 5%, rM = 12%, and bUT = 1.8. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to one decimal place. % Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and rUT? I. Both rM and rUT will remain the same.II. Both rM and rUT will increase by 1 percentage point.III. rM will remain the same and rUT will increase by 1 percentage point.IV. rM will increase by 1 percentage point and rUT will remain the same.V. Both rM and rUT will decrease by 1 percentage point. Now suppose rRF decreases to 4%. The slope of the SML remains constant. How would this affect rM and rUT? I. Both rM and rUT will increase by 1 percentage point.II. Both rM and rUT will remain the same.III. Both rM and rUT will decrease by 1 percentage point.IV. rM will decrease…
As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 4%, rM = 11%, and bUT = 1.2. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to one decimal place. % Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and rUT? I. rM will remain the same and rUT will increase by 1 percentage point.II. rM will increase by 1 percentage point and rUT will remain the same.III. Both rM and rUT will decrease by 1 percentage point.IV. Both rM and rUT will remain the same.V. Both rM and rUT will increase by 1 percentage point. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and rUT? I. Both rM and rUT will decrease by 1 percentage point.II. rM will decrease by 1 percentage point and rUT will remain the same.III. rM will remain the same and rUT will…
Which of the following is false? 1. When given the annual withdrawals desired during the retirement period, PVA tells us the amount we should have accumulated by the time we retire. II. For fixed-rate fully amortized mortage loans, less of the fixed payment goes towards interest as we approach the end of the loan term. III. The right-hand side variables in the PV formula represent the three key factors determining stock prices. O A. O B. O C. OD. None of the above All of the above II only I only

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