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Identify two alternative investment strategies

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You would like to speculate on a rise in the price of a certain stock. The current stock price is $30 and a 3-month call with a strike price of $30 costs $2. You have $6; 000 to invest.

Problem (1) Identify two alternative investment strategies, one in the stock and the other in an option on the stock.

Problem (2) Suppose the stock price rises to $35 in the next three months. Calculate the return for both strategies.

Problem (3) Suppose the stock price drops to $25 in the next three months. Calculate the return for both strategies.

Problem (4) What can you say about these two strategies?

Reference no: EM132936945

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