Question

In: Finance

Ken T. Ucky buys a municipal bond yielding 5.95%. Ken's marginal federal income tax rate is...

Ken T. Ucky buys a municipal bond yielding 5.95%. Ken's marginal federal income tax rate is 18.88%. If Ken receives $7,892.00 in interest payments in 2014, how much (dollar amount) does Ken owe in federal income taxes for 2014 (related to the interest payment)?

$0.00

$1,490.00

$469.57

$377.78

Question 261 pts

Wesley Consin owns 100 shares if WIN stock. Wes purchased the stock a year ago for $1 per share. The stock is currently selling for $4 per share. Wes decides to sell a call on WIN with a strike price of $4.00. The premium is $0.50. A month later, WIN stock is still at $4 per share. The option expires without being exercised. How much (total) did Wes earn on this transaction (not counting fees / commissons)?

$0.00

$50.00

$300.00

$400.00

Question 271 pts

Duke B. Deville sees that WIN stock is trading at $90 per share. Duke writes (sells) a naked call on WIN with a strike price of $92.00. Duke collects a premium of $0.85 on the transaction. WIN's stock price goes up to $110 per share by the expiration date of the option. Calculate Duke's total gains/losses from this transaction:

Duke gains $2,000.00 on the transaction

Duke gains $2,085.00 on the transaction

Duke loses $2,000.00 on the transaction

Duke loses $2,085.00 on the transaction

Duke loses $1,715.00 on the transaction

Question 281 pts

Ken T. Ucky believes that WIN will see a dramatic increase in stock price in the near term. WIN is currently trading at $38 per share. Ken believes that WIN will go as high as $40 per share. Ken buys a call option on WIN with a strike price of $38.00. The premium Ken pays is $1.00. At expiration, WIN has not increased it's share price (it turns out, WIN's stock was fundamentally flawed, relying too much on the company's interior strength combined with a little flash and sizzle...their competitors, meanwhile, gained ground by being good overall companies and by focusing on both external and internal things that really mattered). WIN is still sitting at a price of $38.00. The option expires worthless. Instead of making a lot of money and enjoying his 'one shining moment,' how much money does Ken lose on this bitter, bitter, unforeseeable, painful, and totally unforgettable transaction?

$1.00

$100.00

$200.00

$3,800 and a place in history

$4,000 and immortalization in the 'hall of fame'

Expert Solution

Ken T. Ucky buys a municipal bond yielding 5.95%. Ken's marginal federal income tax rate is 18.88%. If Ken receives $7,892.00 in interest payments in 2014, how much (dollar amount) does Ken owe in federal income taxes for 2014 (related to the interest payment)?

The correct answer is the first option $ 0.00

Municipal bonds are tax exempted.

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Question 261 pts

Wesley Consin owns 100 shares if WIN stock. Wes purchased the stock a year ago for $1 per share. The stock is currently selling for $4 per share. Wes decides to sell a call on WIN with a strike price of $4.00. The premium is $0.50. A month later, WIN stock is still at $4 per share. The option expires without being exercised. How much (total) did Wes earn on this transaction (not counting fees / commissons)?

The correct answer is the second option $ 50.00

Earning on the transaction = Call premium x nos. of shares = $ 0.5 x 100 = $ 50.00

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Question 271 pts

Duke B. Deville sees that WIN stock is trading at $90 per share. Duke writes (sells) a naked call on WIN with a strike price of $92.00. Duke collects a premium of $0.85 on the transaction. WIN's stock price goes up to $110 per share by the expiration date of the option. Calculate Duke's total gains/losses from this transaction:

Duke's total gains/losses from this transaction = C - max (S - K, 0) x N = 0.85 - max (110 - 92, 0) x 100 = - $ 1,715.00

Hence, the correct answer is the last option showing : Duke loses $1,715.00 on the transaction

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Question 281 pts

Ken T. Ucky believes that WIN will see a dramatic increase in stock price in the near term. WIN is currently trading at $38 per share. Ken believes that WIN will go as high as $40 per share. Ken buys a call option on WIN with a strike price of $38.00. The premium Ken pays is $1.00. At expiration, WIN has not increased it's share price (it turns out, WIN's stock was fundamentally flawed, relying too much on the company's interior strength combined with a little flash and sizzle...their competitors, meanwhile, gained ground by being good overall companies and by focusing on both external and internal things that really mattered). WIN is still sitting at a price of $38.00. The option expires worthless. Instead of making a lot of money and enjoying his 'one shining moment,' how much money does Ken lose on this bitter, bitter, unforeseeable, painful, and totally unforgettable transaction?

The loss is = Call premium paid x Number = $ 1 x 100 = $ 100

Hence the correct answer is the second option showing $ 100.00

jeff jeffy answered 8 months ago

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