You own two lots of BHM stock which you bought two years ago. Now, it is...
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You own two lots of BHM stock which you bought two years ago. Now, it is traded at RM3.00 and has been very stable at this price. You have been receiving a 2.50 percent dividend over the last two years. You do not intend to sell the stock now but would not mind letting it go at a price range of RM3.80. Currently, in the market there are 30-day RM3.50 call and 30-day RM3.60 put. Both call and put are quoted at RM0.30. i) ii) Express the appropriate strategy that will let you either earn higher returns or sell the stock at RM3.80. (3 marks) Draw the complete payoff profile diagram for the above strategy. (5 marks) iii) Calculate the percentage return if the BHM stock price is now at RM4.10. (4 marks) You own two lots of BHM stock which you bought two years ago. Now, it is traded at RM3.00 and has been very stable at this price. You have been receiving a 2.50 percent dividend over the last two years. You do not intend to sell the stock now but would not mind letting it go at a price range of RM3.80. Currently, in the market there are 30-day RM3.50 call and 30-day RM3.60 put. Both call and put are quoted at RM0.30. i) ii) Express the appropriate strategy that will let you either earn higher returns or sell the stock at RM3.80. (3 marks) Draw the complete payoff profile diagram for the above strategy. (5 marks) iii) Calculate the percentage return if the BHM stock price is now at RM4.10. (4 marks)
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Answer rating: 100% (QA)
Answer i To achieve higher returns or sell the stock at RM380 you can ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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