Suppose you have $30,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling...

Suppose you have $30,000 to invest. You’re considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $53 per share. You also notice that a call option with a $53 strike price and 8 months to maturity is available. The premium is $4. MMEE pays no dividends.

What is your annualized percentage return if you invest in stocks if, in 8 months, MMEE is selling for $58 per share?

Expert Solution

Here the Investment is being made in the stocks , therefore, the return can be calculated based on the change in the price.

P1 = $58

Po = $53

Period = 8 months

Annualized rate of return = (P1-Po)/Po x 12/ period

= (58-53)/53 x 12/8

= 0.0943396 x 1.5

= 14.15%

jeff jeffy answered 2 years ago

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