Suppose you currently own 3,000 shares of AZZ Incorporated stock that you purchased for S50 per share. You are planning to hold on to the shares until next year and would like to protect yourself from possible fluctuations in the stock price. You decide to limit the risk by selling (writing) thirty call options with a strike price of $53.50 at a premium of $2.50. At the same time you purchase thirty put options with a strike price of $46 with a premium of $4. (a) What is the option strategy that you have decided to employ? (b) Calculate the total profit of this strategy if the price of AZZ stock next year is at (i) $38 (ii) $49 (iii) $117
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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