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APA
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Management
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English (U.S.)
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Topic:

Financial Services & Trading Institutions Problems

Coursework Instructions:

Financial Services & Trading Institutions Problems
Answer following questions :
1. You would like to speculate on a rise in the price of a certain stock. The current stock price is $29, and a three-month call with a strike of $30 costs $2.90. You have $5,800 to invest. Identify two alternative strategies, one involving an investment in the stock and the other involving an investment in the option. What are the potential gains and losses from each?

2. A company has borrowed money for five years at 5%. Explain how it can use the quotes in Table 5.5 to convert this to a floating-rate liability.
3. A trader shorts 500 shares of a stock when the price is $50. The initial margin is 160% and the maintenance margin is 130%. How much margin is required from the investor initially? How high does the price of the stock have to rise for there to be a margin call?

NEED TO SUMBIT ON THE Turnitin. Will check similarity.
Make sure you did your own work, use your own language to answer all the questions CORRECT

Coursework Sample Content Preview:

Financial Services & Trading Institutions Problems
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Financial Services & Trading Institutions Problems
Answers
1 One option is purchasing 200 shares, while the other would be to buy 2,000 options. If the share price increases, the second strategy will give rise to more significant profits. For instance, if the share price increases to $40, you gain from the second option and only from the first strategy. Conversely, if the share price decreases, the second strategy gives more significant losses. For instance, if the share price reduces to $25, the first option leads to a loss while the second strategy leads to a loss of the entire $5,800 investment. Notably, this illustration shows that both options contain built-in leverage.
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