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AnnZ [28]
3 years ago
12

) You purchased a call option for $3.45 17 days ago. The call has a strike price of $45 and the stock is now trading for $51. If

you exercise the call today, what will be your holding period return? If you do not exercise the call today and it expires, what will be your holding period return?
Business
1 answer:
Anit [1.1K]3 years ago
6 0

Answer:

73.9%-100%

Explanation:

Calculation to determine If you exercise the call today, what will be your holding period return

First step is to find the Gross profit

Using this formula

Gross profit=Strike price- Stock Trading amount

Let plug in the formula

Gross profit =$51 - 45

Gross profit= $6

Second step is to find the Net profit

Using this formula

Net profit=Gross profit-Call option

Let plug in the formula

Net profit= $6 - 3.45

Net profit= $2.55

The last step is to find the Holding period return

Using this formula

Holding period return =Net profit/Call option

Let plug in the formula

Holding period return=$2.55/$3.45

Holding period return= 0.739*100

Holding period return =73.9%

Therefore what will be your holding-period return is 73.9%

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Explanation:

The Journal entry is shown below:-

Bad debt expenses Dr, $3,300

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Therefore to record the bad debt for the period we simply debited the bad debt expenses as it increase the expenses and on the other hand we credited the allowance for doubtful accounts as decrease the assets.

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