Rick is considering the following alternatives for investing in D Industries, which is now selling for $44 per share:

(1) Buy 500 shares, and

(2) Buy six-month call options with an exercise price of 45 for $3.25 premium.

a. Assuming no commissions or taxes, what is the annualized percentage gain if the stock reaches $50 in four months and a call was purchased?

b. Assuming no commissions or taxes, what is the annualized percentage gain if the stock is at $30 in four months and the stock was purchased

Check the explanation

Explanation:

To calculate or compute the annual percentage growth rate over a particular year period, minus the opening value from the ending value, after which you'll divide by the opening value. Then multiply the result you got by 100 to get your growth rate that is demonstrated as a percentage.

The step by step calculation can be seen below:

a) if reaches 50 then per share gain

=final-initial-call premium

=50-45-3.25=1.75

gain (%) = gaim/initial) * 100

= (1.75/45) * 100

=3.89%

b) gain=50-44=6

gain (%) = (6/44) * 100

=13.654%