Question: Your company has just awarded you a generous stock option scheme. You suspect that the board will either decide to increase the dividend or announce a stock repurchase program. Which do you secretly hope they will decide? Explain.
Calculate and compare the risk (betas) of the following investments:
(a) a share of Google stock;
(b) a one-year call option on Google;
(c) a one-year put option;
(d) a portfolio consisting of a share of Google stock and a one-year put option;
(e) a portfolio consisting of a share of Google stock, a one-year put option, and the sale of a one-year call.
In each case assume that the exercise price of the option is $430, which is also the current price of Google stock.