Securities Markets. In this section, you will learn:. the main participants in securities markets the difference between primary and secondary markets factors that affect firms’ decisions about which securities to sell and savers’ decisions about which securities to buy
S&P 500, NASDAQ
Let’s see how return and risk depend on s….
= 2% + s(20%)
= 2% – s(8%)
= 2% + s(6%)
The higher is s, the greater the average return on wealth
and return on wealth when stock return is low:
[2% + s(20%)]
[2% – s(8%)]
Risk is higher when s is higher
Risk, difference between high and low return (%)
s = 1
s = .75
s = .5
s = .25
s = 0
Average rate of return (%)
You paid $2 per share to buy a call option on Microsoft stock. The strike price is $40 and the option expires on December 30.
In each of the following scenarios, would you exercise the option? Why or why not?