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?

One share of Napier Inc. is currently trading at $84 per share. In one year, the price is expected either (1) rise to $105 or (2) fall to $60. You are interested in purchasing a call option on Napier, Inc. The option has a strike price of $92 and expires in 1 year. The current risk-free rate for the year is 4%. Based on binomial options pricing (as shown in class), what is a fair price for this option? Answer to the nearest cent, with no punctuation. That is, $5.289 should be entered at 5.29.

Suppose you think company Y’s share is going to appreciate substantially in value next year. The current share of company Y is $150. One call option of this company’s share expiring in one year is currently available at $15 with an exercise price of $150. With $150,000 to invest, you are considering three investment strategies: a. Invest all $150,000 b. Invest all $150,000 in options c. Buy 5,000 options and invest the remaining amount in treasury bills paying 5% annually What is the value of your portfolio and your rate of return for each strategy for the following share prices one year from now? Summarise your results in a table and draw a graph showing return for each alternative (Hint: show return on Y axis and share price on X axis). Share prices $130, $140, $150, $160 and $170

You would like to hold a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on Avalon Company. What would have been the cost of a protective put portfolio? Multiple Choice $53.38 O $52.38 $48.81 $51.19

Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.

Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, SO, is $50, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, C, of $9. With $18, 900 to invest, you are considering three alternatives. a. Invest all $18, 900 in the stock, buying 378 shares. b. Invest all $18,900 in 2, 100 options (21 contracts). c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 in a money market fund paying 6% in interest over 6 months (12% per year). What is your rate of return for each alternative for the following four stock prices in 6 months? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.) The total value of your portfolio in six months for each of the following stock prices is: The percentage…

You want to purchase IBM stock at $130 from your broker using as little of your own money as possible. If initial margin is 50% and you have $19, 600to invest, how many shares can you buy?