Share
Explore BrainMass

Options

The Federal Reserve and Margin Rate on Stocks

The Federal Reserve Bank controls the margin rate on stocks. In the current economic climate, what action would you expect for the Fed to take on this rate and why? (i.e. what is the expected general economic effect of raising, lowering, or leaving unchanged the stock margin rate?)

Stock Options and FASB

Now FASB requires that all employee stock options should be expensed on income statement. On Jan. 2005, AA company granted total $100,000 (fair value) of stock options to the employee. The exercise price is equal to the market price at the grant time. The employees cannot exercise the options until 2007. According to the new req

Real options: Caribou Coffee, Heineken, Tom Tom

1. List and discuss in detail Real Options available to Caribou Coffee (Real Options include: Investment Timing, Abandonment, Flexibility, Growth, etc.) 2. List and discuss in detail Real Options available to Heineken (Real Options include: Investment Timing, Abandonment, Flexibility, Growth, etc.) 3. List and discuss

Activision - Blizzard: Real Options

List and discuss Real Options available to Activision-Blizzard. (Real Options include: Investment Timing, Abandonment, Flexibility, Growth, etc.)

Profit and Optimum Premium Calculations

You have taken a long position in a call option on IBM common stock. The option has an exercise price of $136 and IBM's stock currently trades at $140. The option premium is $5 per contract. a. What is your net profit on the option if IBM's stock price increases to $150 at expiration of the option and you exercise the option?

Long Position in a Call Option on IBM Common Stock

You have taken a long position in a call option on IBM common stock. The option has an exercise price of $136 and IBM's stock currently trades at $140. The option premium is $5 per contract. a. What is your net profit on the option if IBM's stock price increases to $150 at expiration of the option and you exercise the option?

Put Option of Investors

An investor buys a stock for $36. At the same time a 6 month put option to sell the stock for $35 is selling for $2. a) What is the profit or loss from purchasing the stock if the price of the stock is $30? $35? $40? b) If the investor also purchases the put (ie. Construct a protective put), what is the combined cash ou

Financial Liabilities and Assets

Holder Ltd purchased a option contract for issuer Ltd that gave Holder Ltd the right to acquire 100,000 options in Torquay Ltd for a price (exercise price) of $10,000 per share. When the contract was exchanged, the price of Torquay Ltd shares were $9 each. The option entitles Holder Ltd to exercise the options and buy the share

It's about options: puts and calls

Luke's quandary: to hedge or not to hedge A little more than 10 months ago, luck, a mortgage banker in phoenix, bought 300 shares of stock at $40 per share. Since then, the price of stock has risen to 75 per share. It is now near the end of the year, and the market is starting to weaken. Luc feels there is still plenty of play

Call option on Bedrock Boulders stock has a market price of $7

A call option on Bedrock Boulders stock has a market price of $7. The stock sells for $30 a share, and the option has an exercise price of $25 a share. What is the exercise value of the call option? b. What is the options time value? Use the following income statements and balance sheets to calculate Garnet Inc.'s free cash

The Franciscos Investment Options

Hector Francisco is a successful businessman in Atlanta. The box-manufacturing firm he and his wife, Judy, founded several years ago has prospered. Because he is self-employed, Hector is building his own retirement fund. So far, he has accumulated a substantial sum in his investment account, mostly by following an aggressive inv

Stocks and Expected Return

The expected return for Stock Z is 30 percent. If we know the following information about Stock Z: Return Probability Poor 0.2 0.25 Lukewarm x 0.5 Dynamite! 0.4

Effect of Correlation on the Portfolios Returns

The correlation between stocks A and B is 0.50, while the correlation between stocks A and C is -0.5. You already own stock A and are thinking of buying either stock B or stock C. If you want your portfolio to have the lowest possible risk, would you buy stock B or C? Would you expect the stock you choose to affect the return th

Covariance between Stocks

The stocks of Microsoft and Apple have a correlation coefficient of 0.6. The variance of Microsoft stock is 0.4 and the variance of Apple stock is 0.3. What is the covariance between the two stocks?

Entrepreneur Options for an Exit Strategy

What options do entrepreneurs have for an exit strategy as their venture become promising, and what are the considerations they must take into account for the various options? List the various options that entrepreneurs have for exit strategies, i.e., to leave the business and recoup their investment. Give an explanation of

Corporate Finance Conversions

1) Find the conversion (or stock) value for each of the $1,000-par-value convertible bonds described in the following table. Convertible Conversion Ratio Current Market Price of Stock A 25 $42.25 B 16 $50.00 C 20 $44.00 D 5 $19.50 2) On attachment 3) Carol Krebs is considering buying 100 shares of Soo

Options & Trading

Explain how options can be used to construct portfolios & unique trading strategies. 250 or more words.

IBM Common Stock Example Questions

You have taken a long position in a call option on IBM common stock. The option has an exercise price of $136 and IBM's stock currently trades at $140. The option premium is $5 per contract. a) What is your net profit on the option if IBM's stock price increases to $150 at expiration of the option and you exercise the option?

Define a non zero-sum situation and a zero-sum situation.

Define a non zero-sum situation and a zero-sum situation. What are some strategies for a successful or neutral outcome in a zero-sum negotiation? If win-win negotiations are easier to conduct if both parties trust each other, how can you build trust in negotiations? In 200 words How does decreased communication contribute t

Determine the fair value of stocks in the given cases.

1. Computerplus company already paid a $6 dividend per share this year and expects dividends to grow 10% annually for the next four years and 7% annually thereafter. Compute the Price of the companies stock (Note: the required rate of return on this stock is 11%). 2. The chairman of World Food Corporation announced that the f

Market Put Price and Arbitrage-Free Put Price

See the attached files. Chapter 10 A European call option and put option on a stock both have a strike price of $60 and an expiration date in six months. Currently, call price is $15 and put price is $14. The risk-free interest rate is 7% per annum, the current stock price is $57 and a $1.50 dividend is expected in 4 months.

Continuous compounding, gain or loss, equivalent rate

1. An interest rate is 12.5% per annum expressed with continuous compounding. What is the equivalent rate with semiannual compounding? 2. A trader sells 100 European put options (1 contract) with a strike price of $51 and a time to maturity of six months. The price received for each option is $3. The price of the underlying

Special Issues in Valuation

Excel Spreadsheet Incorporate an employee stock option (ESO) into a company's valuation. For the company Google Inc., incorporate the effect of the employee stock option (ESO) plan into the common equity valuation. Be sure to consider both the forecast ESO grants and outstanding ESOs. Perform your valuation in Excel; use ap

Abbott Labs Bond Issues; Forecasted Prices of Capital Stock

1. In the past, Abbott Labs had two bond issues outstanding with the following characteristics: Issue Interest Rate Maturity Current Price A 6% 2008 115 B 6% 2012 118 a) Which issue, A or B, has the higher effective rate of interest? How can you tell? b) Assume that the bonds of both issues have face values of $1

Comparing Two Stocks: Arithmetic Mean & Annual Rate of Return

During the past five years, you owned two stocks that had the following annual rates of return: Year Stock T Stock B 1 17.0% 7.0% 2 6.0% 2.0% 3 -10.0% -8.0% 4 -1.5% 1.5% 5 14.0% 5.0% a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this mea