Problem:
Suppose you have $28,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You also notice that a call option with a $40 strike price and six months to maturity is available. The premium is $4.00. MMEE pays no dividends.
Required:
Question: What is your annualized return from these two investments if, in six months, MMEE is selling for $48 per share? What about $36 per share?
Note: Be sure to show how you arrived at your answer.