You have come into possession of a small inheritance from an old uncle, which you are considering whether you can get to breed. You have identified a stock that you find interesting. It trades today at price 25. A three-month call option can be purchased by an internet based stockbroker in the market, with strike price 26, it trades at price 2.

You are considering investing all 10,000 DKK that you have inherited. Question 1: Should one buy the stock or option. Justify your choice and prerequisites.

Question 2: Describe some of the things you need to consider if you, as a relatively small investor, make this investment in a call option with a stockbroker as a counterparty.

Question 3: How would the situation have changed if, instead of an option, it was a future you invested in.

You are risk averse, and are also considering whether to invest in gold. The price of gold is $ 1500 per Ounce The forward price for delivery in a year is 1700 USD You can borrow money for 5%

Question 4: What arbitrage options exist that you can possibly take advantage of for a quick win. Suppose it costs nothing to store gold.