Answer:
* If you could get 1,200 shares in Woods and 1,200 shares in Mickelson, your profit would be: $7,200;
* Actual expected profit: $2,400.
Explanation:
*<u> If you could get 1,200 shares in Woods and 1,200 shares in Mickelson, what would your profit be?</u>
The total profit would be equals to the sum of positive payoff and negative payoff in which:
Positive payoff = Undervalued per share * 1,2000 shares bought = 8 * 1,200 = $9,600.
Negative payoff = Overvalued per share * 1,2000 shares bought = (2) * 1,200 = $(2,400)
=> Total profit = $9,600 - $2,400 = $7,200.
* <u>What profit do you actually expect:</u>
As for positive payoff stock purchasing, we can only get half of the stock which is 600 stocks, the profit will be again equals to the sum of positive payoff and negative payoff in which:
Positive payoff = Undervalued per share * 600 shares bought = 8 * 600 = $4,800.
Negative payoff = Overvalued per share * 1,2000 shares bought = (2) * 1,200 = $(2,400)
=> Total profit = $4,800 - $2,400 = $2,400.
