1. Why are investors risk-averse? How can investors deal with different degrees of risk? Justify your answer.
2. Calculate the elasticity of a call option with a premium of $5.50 and a strike price of $71. The call has a hedge ratio of 0.7, and the underlying stock’s price is currently $39.
3. You invest $3,300 for three years at 8 percent.
a. What is the value of your investment after one year? Multiply $3,300 × 1.08.
b. What is the value of your investment after two years? Multiply your answer to part a by 1.08. (Round your answer to 2 decimal places.)
c. What is the value of your investment after three years? Multiply your answer to part b by 1.08. This gives your final answer. (Round your answer to 2 decimal places.)