puts, calls, and the underlying stock (or combination). For each investor, document the (1) name of the recommended strategy, (2) the components of the suggested trade, and (3) draw the payoff as a function of the stock price.
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You meet with two investors who have different expectations for stock CBD that can be addressed with various positions in puts, calls, and the underlying stock (or combination). For each investor, document the (1) name of the recommended strategy, (2) the components of the suggested trade, and (3) draw the payoff as a function of the stock price.
a. Investor A already holds CBD stock and wants to lock in gains if the stock drops below its current levels, while maintaining upside exposure.
b. Investor B wants to profit if CBD’s upcoming earnings announcement is either unexpectedly good or disappointingly bad.
c. Investor C already holds CBD stock and believes the stock will not increase much in the near term. As such, she wants to earn some extra income using options.
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- The following traders have different expectations/beliefs as to how the price of a stock will develop in the future. Which trading strategy best meets the expectations for each trader? Eilidh expects the stock price to move a lot, but thinks there is a slightly higher Choose... chance for a significant decline Ying-Fen expects a moderate decline Choose... Sayan expects the stock price to move significantly in either direction Choose... Paul expects a moderate rise Choose... Divya expects the stock price to move very little, if at all Choose...The security market line (SML) is an equation that shows the relationship between risk as measured by beta and the required rates of return on individual securities. The SML equation is given below: Required return on Stock = Risk-free return + (Market risk premium) (Stock's beta) If a stock's expected return plots on or above the SML, then the stock's return is sufficient ✓to compensate the investor for risk. If a stock's expected return plots below the SML, the stock's return is insufficient to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the…You are planning for long term investment in a stock. After specific analysis you have two options i.e., Stocks of Company A and Stocks of Company B. You have following data on the stock prices of both companies; Time Line Share A Share B 2010 15 125 2020 41 320 Please select the share that is more likely give you better return in the long run. Also, show your selection process.
- Under which of the following circumstances would you want to buy a stock? Select one: a. The HPR is greater than zero. b. A stock's holding period return is greater than the CAPM return c. A stock's CAPM return is greater than its holding period return d. The stock's price is higher than its valueA close family friend has approached you to help her determine which of the two common stocks she should invest in. Common Stock A Common stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in?A close family friend has approached you to help her determine which of the two common stocks she should invest in Common Stock A Common Stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.6 19% 0.25 14% 0.25 22% Required: Calculate the expected returns of stock A Determine the risk (standard deviation) and return of stock A Calculate the expected returns of stock B Determine the risk (standard deviation) and return of stock B Which investment should your friend invest in? Jenny has decided that she will invest her $100,000 savings in stocks as follows: What rate of return should Jenny expects to receive on her portfolio? Company Percentage of Investment Expected rate of return Standards Company Limited 45% 9% Starbucks 15% 12% Treasury Bill 40% 4%
- Step by step explaination (use attached diagram) This question relates to Diagram 6 from the diagrams, which shows the probability distributions of returns for Shares N, P and Q. In which share would a risk-averse investor be most likely to invest? Select one: a. Share N b. Share P c. Share Q d. We need more information about the investor's risk tolerance to determine which share the investor would prefer.Discuss the risks and payoffs of the following positions, accompanied by payoff graphs. Buy a stock. Buy a call. Buy stock and sell a call option on the stock (covered call).The Stock Analysis report will detail the portfolio that will be built for the client. This information is based on the recommendations made in the Investor Profile report. This report may include research and analysis of the following: 1. Review the stock market and provide a general overview of performance. Some questions you can provide answers to are: How is the market currently performing? What events are causing noticeable fluctuations? Are there any threats of crashes? 2. What industries will you invest in and why are you going to invest in them? You can also mention newsworthy events, industry performance, historical returns, and performance etc. that support your decision to invest . Perform stock analysis for Apple inc.
- If a stock's expected return plots on or above the SML, then the stock's return is SML, the stock's return is to compensate the investor for risk. cent to compensate the investor for risk. If a stock's expected return plots below the The SML line can change due to expected Inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses. Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): Tar 4%; 10 % ; RPM 6%, and beta - 1.1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. -75 % If inflation…A close family friend has approached you to help her determine which of the two common stocksshe should invest in. Common Stock A Common Stock BProbability Return Probability Return 0.3 11% 0.2 -5% 0.4 15% 0.3 6% 0.3 19% 0.3 14% 0.2 22%Required:a) Calculate the expected returns of stock A b) Determine the risk (standard deviation) and return of stock Ac) Calculate the expected returns of stock B d) Determine the risk (standard deviation) and return of stock Be) Which investment should your friend invest in?Which of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a future