Refer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140. Required: a-1. If the stock price at option expiration is $144, will you exercise your call? a-2. What is the net profit/loss on your position? (Input the amount as a positive value.) a-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) b-1. Would you exercise the call if you had bought the November call with the exercise price $135? b-2. What is the net profit/loss on your position? (Input the amount as a positive value.) b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140? c-2. What is the rate of return on your position? (Negative value should be indicated by a minus sign.)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Refer to the stock options on Microsoft in the Figure 2.10. Suppose you buy a November expiration call option on 100 shares with the excise price of $140.
Required:
a-1. If the stock price at option expiration is $144, will you exercise your call?
a-2. What is the net
a-3. What is the
b-1. Would you exercise the call if you had bought the November call with the exercise price $135?
b-2. What is the net profit/loss on your position? (Input the amount as a positive value.)
b-3. What is the rate of return on your position? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
c-1. What if you had bought the November put with exercise price $140 instead? Would you exercise the put at a stock price of $140?
c-2. What is the rate of return on your position? (Negative value should be indicated by a minus sign.)
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