What will be the expected return on hht shares

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Question - ABL shares are currently trading at a price of $36, while HHT shares are trading at a price of $48.98. The risk-free rate is 1.22% per year. Using the information above, perform each of the following tasks:

a) Identify which of the following options are in-the-money, out-of-the-money or at-the-money: Call on ABL with a strike of $37.79, Call on ABL with a strike-price of $38, Put on HHT with a strike-price of $63.65.

b) If HHT shares have a 77% chance of increasing by 10% and a 23% chance of decreasing by 19% by the date of the option expiration, what will be the expected return on HHT shares and the expected return on a protective put position? For simplicity you may assume the put has a price of $1 and has the same strike-price as listed above.

Reference no: EM133165105

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