[Greenmile1234]

B.Assuming that the Stalchecks' ordinary income is currently being taxed at a combined (federal and state) tax rate of 38%, and that they would pay a 15% capital gains tax on dividends and capital gains for holding periods longer than 12 months, determine the after-tax HPR for each of their 4 investment vehicles.

[Greenmile1234]

Hector Francisco is a successful business in Atlanta. The box-manufacturing firm he and his wife, Judy, founded several years ago have prospered. Because he is self-employed, hector is building his own retirement fund. So far, he has accumulated a substantial sum in the investment account, most by following an aggressive investment posture. He does this because, as he puts it, 'In this business you have never know when the bottom's going to fall out.' Hector has been following the stock of Rembrandt Paper Product (RPP), and after conducting extensive analysis, he feels the stock is about ready to move. Specially, he believes that within the next 6 months, RPP could go to about $80 per share, from its current level of $57.60. Stock pays annual dividends of $2.40 per share. Hector figures he would receive two quarterly dividends payment over his 6-months investment horizon.
In Studying RPP, Hector has learned that the company has 6-month call options (with $50 and $60 strike prices) listed on the CBOE. The CBOE calls are quoted at $8 for the options with $50 strike prices and at $5 for the $60 options.

How many alternative investment vehicles does hector have if he wants to invest in RPP for no more than 6 months? What if he has a 2-year investment horizon?

Using a 6-month holding period and assuming the stock does indeed rise to $80 over this time frame:

Find the value of the both calls, given that tat the end of the holding period neither contains any investment premiums.
Determine that holding period return for each of the 3 investment alternatives open to Hector Francisco.
Which course of action would you recommend if Hector simply wants to maximize profit? Would your answer change if other factors (e. G. Comparative risk exposure where considered along with return? Explain.

[joypulv]

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