Suppose you have $55,000 to invest. You’re considering Miller-Moore Equine Enter
ID: 2753466 • Letter: S
Question
Suppose you have $55,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $110 per share. You also notice that a call option with a $110 strike price and six months to maturity is available. The premium is $5.5. MMEE pays no dividends. What is your annualized return from these two investments if, in six months, MMEE is selling for $118 per share? What about $106 per share? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
Annualized Return Stock Option $118 per share % % $106 per share % %Explanation / Answer
Stock Call option When stock is 118 No purchased 500 10000 Purchase price 110 5.5 Price after 6 months 118 8 Return 4000 25000 % return 7.27% 45% Annualized Return 15.07% 111.57% When stock is 106 No purchased 500 10000 Purchase price 110 5.5 Price after 6 months 106 106 Return -2000 0 The call expires since underlying price is less than strike price % return 0 0 Annualized Return 0 0
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