Question
Firm XYZ's stock is currently trading at $125. The put option on XYZ's stock with a strike price of $110 and an expiration date one
Firm XYZ's stock is currently trading at $125. The put option on XYZ's stock with a strike price of $110 and an expiration date one year from today costs $6. The call option on XYZ's stock with a strike price of $135 and an expiration date one year from today costs $8.
A. If you spent $8000 to purchase 1000 of the call options mentioned above. What is your rate of return if XYZ's stock price raises to $140 one year later?
B. If you purchased a share of stock and purchased a put option mention above. Calculate the payoff, profit, and rate of return of this investment when XYZ's share price is $100 and $135, respectively one year later.
C. If you purchased a share of stock and sold a call option mention above. Calculate the payoff, profit, and rate of return of this investment when XYZ's share price is $125 and $140, respectively one year later.
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To calculate the rate of return and other metrics for the given scenarios lets analyze each situation individually A If you spent 8000 to purchase 100...Get Instant Access to Expert-Tailored Solutions
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