1. You are buying a put option of GM at a strike price of $75 and maturity of 1 month. The current trading price is $75. The price of the option is $2. What would the major motive to buy the put option? What is the maximum loss for the investment? What is the maximum gain?
2. What’s the benefit of buying on margin? If the initial margin is 50%, maintenance margin is 40%, when will you receive a margin call for the stock you bought at $50/share at margin?
3. Assume that you have invested $100 in a fund one year ago, the annual return is 6% over the year. How much does the investment worth now? How much will it be next year if the return remains the same?