View the step-by-step solution to:

Calculating net profits of options and securities using CAPM. Calculate the net profits of each option under the following assumption. Also indicate...

Calculating net profits of options and securities using CAPM.
1. Calculate the net profits of each option under the following assumption. Also indicate if the option is ITM, ATM, or QTM.
Strike price of options = $100
Premium of options =$10
a.) Long position of Call option if the stock price is $125 and if the stock price is $85.
b.) Short position of Put option if the stock price is $125 and if the stock price is $85.
2. You expect the IBM to hit $120 per share with expected dividends of $2.50 in one year. Its current price is $105 and your research estimates the beta at 1.15. Market risk premium is .07 and the U.S. T-bill is expected to yield .05. Is the IBM a good investment? Conduct security analysis using CAPM. Can you also explain your answers.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question