Suppose Your Wealthy Aunt Minnie Has Asked You to Manage

question 16

Essay

Suppose your wealthy Aunt Minnie has asked you to manage her large share portfolio.You would like to buy and/or sell options on many of the shares she owns.Describe the types of options you would buy or sell, as well as your rationale, given the following circumstances: a.Aunt Minnie owns 10,000 shares of IBM common share.You believe it is going to fall in price, but she won't let you sell it because her late husband told her never to let it go.How do you protect her from the impending price decline? b.Your analysis suggests that the common share of Jet-Electro is poised to increase in value sharply over the next year.Aunt Minnie doesn't want to buy any of the shares, but does want you to use options to profit if the price rises.What do you do? c.Although Aunt Minnie doesn't want you to sell any of the shares she owns, she would like you to use options to generate a little extra income.How might you do this?

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Definitions:

Higher Wage

A wage rate that is above the average or minimum level commonly paid for similar work.

Wage Discrimination

Unequal pay for workers who perform similar jobs or duties, often based on gender, race, age, or sexual orientation.

Marginal Productivity

The increase in output produced by adding one more unit of a specific input, keeping all other inputs constant.

Market Failure

A situation where the allocation of goods and services by a free market is not efficient, often due to externalities, monopolies, information asymmetries, or public goods.