I don't like my investments to go down too much. Using $50000 I can buy 200 shares of Tesla, at $250/share. Or, I can invest 45000 in a safe stock, with 6% return, and with the remaining $5000 buy 1year Tesla Call Options with $19 per call, strike price $250. With this strategy, I use options to limit my losses in case Tesla crashes in price. On the other hand, if Tesla goes up to $400, how much money am I going to have in total?

I don't like my investments to go down too much. Using $50000 I can buy 200 shares of Tesla, at $250/share. Or, I can invest 45000 in a safe stock, with 6% return, and with the remaining $5000 buy 1year Tesla Call Options with $19 per call, strike price $250. With this strategy, I use options to limit my losses in case Tesla crashes in price. On the other hand, if Tesla goes up to $400, how much money am I going to have in total?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

You are bearish on Telecom and decide to sell short 100 shares at the current market price of $49 per share. a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? Initial margin b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.) Stock price reaches
1. Explain the pros and cons of making investment on margin (e.g. buying stocks on margin). Use a numerical example to support your answer. 2. You are positive (or bullish) on a biotech stock. The current market price of this stock is US$50 per share and you have US$5,000 on hand for investment. You borrow another US$5,000 from the broker at an interest rate of 8% per year so that you have a total sum of US$10,000 to invest in the stock. a. What is your rate of return from this stock if the share price rises by 10% in the next year, assuming this stock pays zero dividend and the transaction cost is zero ? b. How far does the price of this biotech stock have to fall so that you will receive a margin call from your broker if the maintenance margin is 30% ? Assume the price fall happens immediately. 3. You are considering to invest in a mutual fund with a 4% load and an expense ratio of 0.5%. Alternative, you may invest in a bank certificate of deposit (CD) paying 6% interest. a.…
CAN I GET HELP as soon as possible please Explain your answer for each of them. Show all your work. The required return on ABC stock is 14%. The risk-free rate of return is 4% and the real rate of return is 2%. How much are investors requiring as compensation for risk? A) 8% B) 10% C) 12% D) 14% The efficient market hypothesis suggests thatA) investors should not try to outguess the market by constantly buying and selling securities. B) investors do better on average if they adopt a "buy and hold" strategy.C) buying into a mutual fund is a sensible strategy for a small investor.D) all of the above are sensible strategies.E) only A and B of the above are sensible strategies.
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share.a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position?
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share. Required:a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position? b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.)
You are bearish on Telecom and decide to sell short 280 shares at the current market price of $100 per share. a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? (Round your answer to the nearest whole number.) b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.)
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $36 per share. Required: a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? Initial margin b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.) Stock price reaches
You strongly believe that the price of Breener Inc. stock will rise substantially from its current level of $137, and you are considering buying shares in the company. You currently have $13,700 to invest. As an alternative to purchasing the stock itself, you are also considering buying call options on Breener stock that expire in three months and have an exercise price of $140. These call options cost $10 each. a. Compare and contrast the size of the potential payoff and the risk involved in each of these alternatives. b. Calculate the three-month rate of return on both strategies assuming that at the option expiration date Breener's stock price has (1) increased to $155 or (2) decreased to $135. c. At what stock price level will the person who sells you the Breener call option break even? Can you determine the maximum loss that the call option seller may suffer, assuming that he does not already own Breener stock?
You would like to speculate on a rise in the price of "Microsoft". The current stock price is $ 100, and a three-months call with a strike price of $ 102 costs $5. You have $10,000 to invest. a. Identify two alternative investment strategies in “Microsoft “with the potential gains and losses using the following two scenarios: • If the spot price went up to $ 110. • If the spot price went down to $ 90. b. Explain the results
You would like to speculate on a rise in the price of "Microsoft". The current stock price is $ 100, and a three-months call with a strike price of $ 102 costs $5. You have $10,000 to invest. Identify two alternative investment strategies in “Microsoft “with the potential gains and losses using the following two scenarios: If the spot price went up to $ 110. If the spot price went down to $ 90.
You are considering investing in a technology stock but are concerned that the required return may be too low. You will not purchase the stock if the required return is below 13%. Will you purchase the stock given the following information: The expected return on the market is 10%; T-bill rates are 5%; the stock’s β is 1.5.
You are bearish on Telecom and decide to sell short 100 shares at the current market price of $47 per share. Required: a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position? b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS