Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

An investor has $1000 to invest. Being bullish, he has the choice between buying 5 shares of a stock for $200/share or buying 50 ATM

An investor has $1000 to invest. Being bullish, he has the choice between buying 5 shares of a stock for $200/share or buying 50 ATM call options for c=$20.

If the investor's bullish expectations come true and the stock's price rises 30%, the investor earns $300 profit, a return of 30%, on the stock investment. Had he chosen buying the call options, his profit would be $,-------- a return of ------%.

If the investor's bullish expectations do not come true and the stock's price decreases by 30%, the investor earns $ -300 profit, or -30% return, on the stock investment. Had he chosen buying the call options, his profit would be $-------, a return of ---------%.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions