Valuing Investments

Consider following strategy: Write both a put and a call on Tesla stock with strike prices of $35. The price of the call and put are $3 and $5 respectively.

(a) Draw the payoff diagram for this strategy.

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(b) Draw the profit diagram for this strategy.

(c) For what range of prices does this strategy make a profit?

(d) What is the maximum loss to this strategy?

(e) “You employ this strategy if you think volatility will be high.” True or False. Why?

 

1. Suggest one key factor that a financial manager should evaluate when determining whether to invest in stocks or bonds. Provide support for your rationale.2

. Create an argument on whether the Wilshire 5000 or the Dow Jones is a better index of the performance of the broad stock market index. Support your answer.

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