Answer To The Question No.

06

Payoff of Three Strategies

Payoff
$180,000

$160,000 $160,000

IBM Stock Price $140,000

$120,000

$103,000 All Stock

  $60 $70 $80 $90 $100 $100,000
$100,000 All Options
$90,000
Lev. Equity
$80,000
$80,000 $80,000
$83,000
$70,000
All Stock $60,000 $70,000 $80,000 $90,000 $100,000 $60,000
$60,000
$63,000 $63,000 $63,000

$40,000

All Options $0 $0 $0 $80,000 $160,000

$20,000

$0 $0 $0 $0
$60 $70 $80 $90 $100
Lev. Equity $63,000 $63,000 $63,000 $83,000 $103,000
 Return of Three Strategies
Rates of Return 150%

100%

IBM Stock Price

100%

50%
28.75%
25.00% All Stock
  $60 $70 $80 $90 $100 0.00%
12.50%
3.75%
0%
All Options
Lev. Equity
0% -12.50%
-21.25%
$60 $70 $80 $90 $100
All 12.50
-25.00%
-21.25% -21.25%

Stock -25% -12.50% 0% % 25% -50%

All -100%
-100%
-100% -100%

Options -100% -100% -100% 0% 100%

-150%

Lev. 28.75
Equity -21.25% -21.25% -21.25% 3.75% %
 Profit of Three Strategies
$100,000
Profit

$80,000
$80,000

$60,000
IBM Stock Price

$40,000

$20,000 All Stock

$20,000 $23,000
$10,000 All Options
  $60 $70 $80 $90 $100
$0 $3,000
$0 Lev. Equity
$0
($10,000)
$60 $70 $80 $90 $100
($20,000)
($20,000)
($17,000) ($17,000) ($17,000)
All Stock ($20,000) ($10,000) $0 $10,000 $20,000

($40,000)

($60,000)
All Options ($80,000) ($80,000) ($80,000) $0 $80,000

($80,000)
($80,000) ($80,000) ($80,000)

($100,000)
Lev. Equity ($17,000) ($17,000) ($17,000) $3,000 $23,000