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Suppose you invested $1,400 in a stock with a share price of $35. After one year the stock price per share is $49. Also, for each share, you received a $1.40 dividend.

MODULE 6 Assignment

  1. Explain how options are used to manage risk.  Give an example with prices.  Could you see yourself doing this? –
  • Discuss the “Covered Call” writing strategy.  I have to admit that this is one that I did use most frequently as it was a way to increase my customers rate of return.  Create an example and show me how its done.
  • Calculating Rewards –

Solve the following problem.  Show all calculation!!!

Here’s a very common situation on calculating a return on investment.  Suppose you invested $1,400 in a stock with a share price of $35.   After one year the stock price per share is $49.  Also, for each share, you received a $1.40 dividend.
What was your total dollar return? 

c. How much was capital gain and how much was dividend? 

d. What was the capital gain yield in percentage? 

e. What was the dividend percentage gain? 

f. What was the total percentage return?

4.  Diversification – what is this concept anyway?  Everyone talks about it.  But, if you know a stock is going to go up, why not put a significant amount of your money there?  Oh, you mean the sure thing isn’t always the sure thing!  Discuss several ways a portfolio can be diversified, give at least 3 specific examples. 

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