please show work for each problem for business calculator. ex. rate, N, PMT,PV,F
ID: 2784961 • Letter: P
Question
please show work for each problem for business calculator. ex. rate, N, PMT,PV,FV
7 Is is January 1 and Bobitronics Inc. (BOB) stock is currently trading at $100.88. There is a May call option on BOB's stock with a strike price of 110. The option is currently trading at $2.73. Assume that the stock increases in value to $119.70 shortly before expiration. Calculate the percentage rate of return under the following 2 scenarios: a) You buy the stock today at $100.88 and then sell it at $119.70, and b) you buy the May 110 call contract at $2.73, exercise the option, and then sell the stock for $119.70. Assume that you can exercise and sell the stock simulataneously with no transactions costs.Explanation / Answer
Answer
Option 1 :- if by today @ $100.88 and sell @$ 119.70
% rate of return = Closing Value - Opening Value/ Opening value = 119.70-100.88/100.88 = 18.66 % for 4 month
It is assumed that sell in the beging so return per annum is = 18.66%*12/4 = 55.98%
Option 2:- If Call Option is taken
Calculation Of profit = Sales Price - (Call option price + premium )
= 119,70 - (110+2.73)/110 = 6.336 in a day
It is assumed that secuirty purchased on the same day and sold in the same day so return p.a = 6.336*365 = 2312.64 %
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