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notka56 [123]
3 years ago
10

An investor owns 5,000 shares of IBM stock, $105 per share. He thinks that there is no large rise and possible drop in price. Th

is investor decides to sell 50 December 110 call option at $4, receiving $20,000. Note: Each call option contract provides for the right to buy 100 shares of stock. December 110 call option means that the strike price of the call is 110 and it matures in December.
Required:
1. If IBM stock price rises from $105 to $112, the profit associated with the passive strategy is __________ and the profit associated with the covered call writing strategy is ____________.
Business
1 answer:
lutik1710 [3]3 years ago
5 0

Answer:

If IBM stock price rises from $105 to $112, the profit associated with the passive strategy is $ 35,000 and the profit associated with the covered call writing strategy is $ 45,000 .

Explanation:

Shares = 5000

Price of shares = $105

Sell Price = $112

The profit associated with the passive strategy  = $(112 - 105) × 5000

= $ 35,000

Now with covered call also included in the strategy the profit/loss from covered call can be calculated as

Strike Price = $110

Spot Price = $112

Total Shares on which Call options are sold = 50 × 100 = $5000

Total Premium received = 5000 × 4 = $20000

(Spot Price - Strike Price ) × Total Shares

= $(112 - 110) × 5000

= $10,000

Hence Net Profit = Premium received - $10,000 = $20,000 - $10,000

= $ 10000

Hence the profit associated with the covered call writing strategy

= $35,000 + $10,000

= $ 45,000

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Answer:

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Explanation:

Business level strategy deals with the business's position in the market relative to its competition and the forces of competition. This is why it focuses on the business's core competencies and how its customers's needs are satisfied. Stronger core competencies equal greater consumer satisfaction which equals larger profit.

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3 years ago
Problem 2 (9 points) The following information was taken from the income statement and balance sheet of The Perryman Company for
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Answer and Explanation:

The computation is shown below;

The net profit margin is

= Net income ÷ sales revenue

= $184,000 ÷ $574,000

= 32%

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= Sales revenue ÷ average of assets

= $574,000 ÷ ($2,142,000 + $1,998,000)  ÷ 2

= $574,000 ÷ $2,070,000

= 0.28 times

c. The return on assets is

= Net income ÷ average of assets

= $184,000 ÷ $2,070,000

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= 8.89%

3 0
3 years ago
Amy's Drive-Thru, a fast food facility near a college campus, offers healthy, sustainably grown vegetarian and vegan fast-food a
Tems11 [23]

Answer: Focused differentiation strategy

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In the given case, as we know that vegetarian food is not very popular among the college students, since the preference towards health is usually seen in the age group of 25 to 35 working individuals.

Thus, the customer base of amy is very narrow.

Hence, we can conclude that Amy's is using focused differentiation strategy

7 0
3 years ago
The following events occurred for Favata Company: a. Received $10,000 cash from owners and issued stock to them. b. Borrowed $7,
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Answer:

(a)

Increase in Cash of $10,000 and Increase in Common Stock account of $10,000

Asset increases by $10,000; Owner's equity increases by $10,000. Accounting equation remains in balance.

(b)

Increase in Cash of $7,000 and Increase in Short-term Note Payable account of $7,000

Asset increases by $7,000; Liability increases by $7,000. Accounting equation remains in balance.

(c)

Increase in Fixed Asset of $800 and Increase in Account Payable account of $800

Asset increases by $800; Liability increases by $800. Accounting equation remains in balance.

(d)

Increase in Fixed Asset of $12,000, Decrease in Cash of $1,000 and Increase in Long-term Note Payable account of $11,000

Asset increases by $11,000; Liability increases by $11,000. Accounting equation remains in balance.

(e)

Increase in Fixed asset of $3,000, Decrease in Cash of $1,000 and Increase in Account Payable account of $2,000

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Explanation:

Explanation is given in Answer part

6 0
3 years ago
The current rates for an 80/20 mortgages are 4.15% for the first mortgages and 9.75% for the second mortgage. On a $200,000 30 y
olganol [36]

Answer: The actual rate of the mortgage is 5.27%.

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We have

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Total                                             5.27%  

5 0
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