corporate finance LeasingPPT课件

McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CorporateFinanceRossWesterfieldJaffeSixthEditionMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ChapterOutline21.1TypesofLeases21.2AccountingandLeasing21.3Taxes,theIRS,andLeases21.4TheCashFlowsofLeasing21.5ADetouronDiscountingandDebtCapacitywithCorporateTaxes21.6NPVAnalysisoftheLease-versus-BuyDecision21.7DebtDisplacementandLeaseValuation21.8DoesLeasingEverPay:TheBaseCase21.9ReasonsforLeasing21.10SomeUnansweredQuestionsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.1TypesofLeases TheBasics Aleaseisacontractualagreementbetweenalesseeandlessor. Thelessorownstheassetandforafeeallowsthelesseetousetheasset.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*OperatingLeases Usuallynotfullyamortized. Usuallyrequirethelessortomaintainandinsuretheasset. Lesseeenjoysacancellationoption.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*FinancialLeasesTheexactoppositeofanoperatinglease. Donotprovideformaintenanceorservicebythelessor. Financialleasesarefullyamortized. Thelesseeusuallyhasarighttorenewtheleaseatexpiry. Generally,financialleasescannotbecancelled.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.2AccountingandLeasing Intheolddays,leasesledtooff-balance-sheetfinancing. Today,leasesareeitherclassifiedascapitalleasesoroperatingleases. Operatingleasesdonotappearonthebalancesheet. Capitalleasesappearonthebalancesheet—thepresentvalueoftheleasepaymentsappearsonbothsides.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*AccountingandLeasingBalanceSheetTruckispurchasedwithdebtTruck $100,000 Debt $100,000Land $100,000 Equity $100,000TotalAssets $200,000 TotalDebt&Equity $200,000OperatingLeaseTruck Debt Land $100,000 Equity $100,000TotalAssets $100,000 TotalDebt&Equity $100,000CapitalLeaseAssetsleased $100,000 Obligationsundercapitallease $100,000Land $100,000 Equity $100,000TotalAssets $200,000 TotalDebt&Equity $200,000McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CapitalLease Aleasemustbecapitalizedifanyoneofthefollowingismet: Thepresentvalueoftheleasepaymentsisatleast90percentofthefairmarketvalueoftheassetatthestartofthelease. Theleasetransfersownershipofthepropertytothelesseebytheendofthetermofthelease. Theleasetermis75percentormoreoftheestimatedeconomiclifeoftheasset. Thelesseecanbuytheassetatabargainpriceatexpiry.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.3Taxes,theIRS,andLeases Theprincipalbenefitoflong-termleasingistaxreduction. Leasingallowsthetransferoftaxbenefitsfromthosewhoneedequipmentbutcannottakefulladvantageofthetaxbenefitsofownershiptoapartywhocan. Naturally,theIRSseekstolimitthis,especiallyiftheleaseappearstobesetupsolelytoavoidtaxes.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.3Taxes,theIRS,andLeases ThelesseecandeductleasepaymentsiftheleaseisqualifiedbytheIRS. Thetermmustbelessthan30years. Therecanbenobargainpurchaseoption. Theleaseshouldnothaveascheduleofpaymentsthatisveryhighatthestartoftheleaseandlowthereafter. Theleasepaymentsmustprovidethelessorwithafairmarketrateofreturn. Theleaseshouldnotlimitthelessee’srighttoissuedebtorpaydividends. Renewaloptionsmustbereasonableandreflectfairmarketvalueoftheasset.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.4TheCashFlowsofLeasingConsiderafirm,ClumZeeMovers,thatwishestoacquireadeliverytruck.Thetruckisexpectedtoreducecostsby$4,500peryear.Thetruckcosts$25,000andhasausefullifeof5years.Ifthefirmbuysthetruck,theywilldepreciateitstraight-linetozero.Theycanleaseitfor5yearsfromTigerLeasingwithanannualleasepaymentof$6,250.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.4TheCashFlowsofLeasing CashFlows:Buy Year0 Years1-5 Costoftruck –$25,000After-taxsavings 4,500×(1-.34)= $2,970DepreciationTaxShield 5,000×(.34)= $1,700 –$25,000 $4,670 CashFlows:Lease Year0 Years1-5 LeasePayments –6,250×(1-.34)= –$4,125After-taxsavings 4,500×(1-.34)= $2,970 –$1,155McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.4TheCashFlowsofLeasing CashFlows:LeasingInsteadofBuying Year0 Years1-5 $25,000 –$1,155–$4,670=–$5,825 CashFlows:BuyingInsteadofLeasing Year0 Years1-5 –$25,000 $4,670–$1,155=$5,825 Howeverwewishtoconceptualizethis,weneedtohaveaninterestrateatwhichtodiscountthefuturecashflows. Thatrateistheafter-taxrateonthefirm’ssecureddebt.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.5ADetouronDiscountingandDebtCapacitywithCorporateTaxes PresentValueofRisklessCashFlows Inaworldwithcorporatetaxes,firmsshoulddiscountrisklesscashflowsattheafter-taxrisklessrateofinterest. OptimalDebtLevelandRisklessCashFlows Inaworldwithcorporatetaxes,onedeterminestheincreaseinthefirm’soptimaldebtlevelbydiscountingafutureguaranteedafter-taxinflowattheafter-taxrisklessinterestrate.Thismaterialiskindofoptional.Moststudentsarehappytousetheaftertaxrateonsecureddebtandcallitaday.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.6NPVAnalysisoftheLease-vs.-BuyDecision Aleasepaymentislikethedebtserviceonasecuredbondissuedbythelessee. Intherealworld,manycompaniesdiscountboththedepreciationtaxshieldsandtheleasepaymentsattheafter-taxinterestrateonsecureddebtissuedbythelessee.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*NPVAnalysisoftheLease-vs.-BuyDecisionMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.7DebtDisplacementandLeaseValuation Consideringtheissuesofdebtdisplacementallowsforamoreintuitiveunderstandingoftheleaseversusbuydecision. Leasesdisplacedebt—thisisahiddencostofleasing.Ifafirmleases,itwillnotuseasmuchregulardebtasitwouldotherwise. Theinteresttaxshieldwillbelost.Obviously,thissectioncanbeskippedforthoseclassesthataresatisfiedwithanalyzingleasingwiththetechniquepresentedinprevioussections.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.7DebtDisplacementandLeaseValuation ThedebtdisplacedbyleasingresultsinforgoneinteresttaxshieldsonthedebtthatClumZeemoversdidn’tgointowhentheyleasedinsteadofboughtthetruck. SupposeClumZeeagreestoaleasepaymentof$6,250beforetax.Thispaymentwouldsupportaloanof$25,219.20(seethenextslide) Inexchangeforthis,theygettheuseofatruckworth$25,000. ClearlytheNPVisanegative$219.20,whichagreeswithourearliercalculations.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.7DebtDisplacementandLeaseValuationSupposeClumZeeagreestoaleasepaymentof$6,250beforetax.Thispaymentwouldsupportaloanof$25,219.20Calculatetheincreaseindebtcapacitybydiscountingthedifferencebetweenthecashflowsofthepurchaseandthecashflowsoftheleasebytheafter-taxinterestrate.Ohyeah,thisisthehardwaytodoit.“Thesamefirethatstrengthenssteelmeltsbutter.”McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.8DoesLeasingEverPay:TheBaseCase Intheaboveexample,ClumZeeMoverschosetobuy,becausetheNPVofleasingwasanegative$219.20 NotethatthisistheoppositeoftheNPVthatTigerLeasingwouldhave:McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.9ReasonsforLeasing GoodReasons Taxesmaybereducedbyleasing. Theleasecontractmayreducecertaintypesofuncertainty. Transactionscostscanbehigherforbuyinganassetandfinancingitwithdebtorequitythanforleasingtheasset. BadReasons AccountingMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ATaxArbitrage SupposeClumZeemoversisactuallyinthe25%taxbracketandTigerLeasingisinthe34%taxbracket.IfTigerreducestheleasepaymentto$6,200,canbothfirmshaveapositiveNPV? CashFlows:TigerLeasing Year0 Years1-5 Costoftruck –$25,000DepreciationTaxShield 5,000×(.34)= $1,700LeasePayments 6,200×(1–.34)= $4,092 –$25,000 $5,792NPV=76.33 CashFlowsClumZeeMovers:LeasingInsteadofBuying Year0 Years1-5 Costoftruckwedidn’tbuy $25,000LostDepreciationTaxShield 5,000×(.25)= –$1,250After-TaxLeasePayments 6,200×(1–.25)= –$4,650 $25,000 –$5,900NPV=-$543.91McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ReservationsandNegotiations WhatisthesmallestleasepaymentthatTigerLeasingwillaccept?SettheirNPVtozeroandsolvefor$Lmin: CashFlows:TigerLeasing Year0 Years1-5 Costoftruck -$25,000DepreciationTaxShield 5,000×(.34)= $1,700LeasePayments $Lmin×(1–.34)= $Lmin×.66 -$25,000 $1,700+ $Lmin×.66McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ReservationsandNegotiations WhatisthehighestleasepaymentthatClumZeeMoverscanpay?SettheirNPVtozeroandsolvefor$Lmax: CashFlowsClumZeeMovers:LeasingInsteadofBuying Year0 Years1-5 Costoftruckwedidn’tbuy $25,000LostDepreciationTaxShield 5,000×(.25)= –$1,250After-TaxLeasePayments –$Lmax×(1–.25)= .75×Lmax $25,000 –1,250–.75×LmaxNoleaseispossible:Lmin>LmaxMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.10SomeUnansweredQuestions AretheUsesofLeasesandofDebtComplementary? WhyareLeasesofferedbyBothManufacturersandThirdPartyLessors? WhyareSomeAssetsLeasedMorethanOthers?McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.11SummaryandConclusions Therearethreewaystovaluealease. Usethereal-worldconventionofdiscountingtheincrementalafter-taxcashflowsatthelessorsafter-taxrateonsecureddebt. Calculatetheincreaseindebtcapacitybydiscountingthedifferencebetweenthecashflowsofthepurchaseandthecashflowsoftheleasebytheafter-taxinterestrate.Theincreaseindebtcapacityfromapurchaseiscomparedtotheextraoutflowatyear0fromapurchase. UseAPV(presentedintheappendixtothischapter). Theyallyieldthesameanswer. Theeasiestwayistheleastintuitive.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*Appendix21A:APVApproachtoLeasingAPV=All-EquityValue+FinancingNPVCalculationsshownonthefollowingslideswillshowthatforthelatestClumzeeMoversexample(taxrateis25%)APV=$591.38–$1,135.30APV=–$543.91WhichisthesamevalueastheeasierNPVanalysis.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*Appendix21A:APVApproachtoLeasingAPV=All-EquityValue+FinancingNPV Tofindtheall-equityvalue,discountthecashflowsatthepre-taxinterestrate.Theaftertaxratewas5%whichimpliesapretaxrateof6.66%=5%/(1-.25).McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*Appendix21A:APVApproachtoLeasingAPV=All-EquityValue+FinancingNPV TheNPVofthefinancingistheforgoneinteresttaxshieldsonthedebtthatClumZeemoversdidn’tgointowhentheyleasedinsteadofboughtthetruck. ClumZeeagreedtoaleasepaymentof$5,900. Thispaymentwouldsupportaloanof$25,543.91McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*Appendix21A:APVApproachtoLeasingThelostinteresttaxshieldassociatedwiththisadditionaldebtcapacityof$25,543.91hasapresentvalueof$1,135.30McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*21.7DebtDisplacementandLeaseValuationThelostinteresttaxshieldassociatedwiththisadditionaldebtcapacityof$25,219.20hasapresentvalueof$McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CorporateFinanceRossWesterfieldJaffeSixthEditionThere’salotofmaterialinthischapter,that’swhythere’ssomanyslides.Itwouldtakeatleasttwo1:15classperiodstogetthroughit.Ifyoudon’thavethatkindoftime,pickandchoosetheslidesyouwantaccordingtowhatyouwishtoemphasize.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ChapterOutline22.1Options22.2CallOptions22.3PutOptions22.4SellingOptions22.5ReadingTheWallStreetJournal22.6CombinationsofOptions22.7ValuingOptions22.8AnOption‑PricingFormula22.9StocksandBondsasOptions22.10Capital-StructurePolicyandOptions22.11MergersandOptions22.12InvestmentinRealProjectsandOptions22.13SummaryandConclusionsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.1Options Manycorporatesecuritiesaresimilartothestockoptionsthataretradedonorganizedexchanges. Almosteveryissueofcorporatestocksandbondshasoptionfeatures. Inaddition,capitalstructureandcapitalbudgetingdecisionscanbeviewedintermsofoptions.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.1OptionsContracts:Preliminaries Anoptiongivestheholdertheright,butnottheobligation,tobuyorsellagivenquantityofanasseton(orperhapsbefore)agivendate,atpricesagreedupontoday. CallsversusPuts Calloptionsgivestheholdertheright,butnottheobligation,tobuyagivenquantityofsomeassetatsometimeinthefuture,atpricesagreedupontoday.Whenexercisingacalloption,you“callin”theasset. Putoptionsgivestheholdertheright,butnottheobligation,tosellagivenquantityofanassetatsometimeinthefuture,atpricesagreedupontoday.Whenexercisingaput,you“put”theassettosomeone.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.1OptionsContracts:Preliminaries ExercisingtheOption Theactofbuyingorsellingtheunderlyingassetthroughtheoptioncontract. StrikePriceorExercisePrice Referstothefixedpriceintheoptioncontractatwhichtheholdercanbuyorselltheunderlyingasset. Expiry Thematuritydateoftheoptionisreferredtoastheexpirationdate,ortheexpiry. EuropeanversusAmericanoptions Europeanoptionscanbeexercisedonlyatexpiry. Americanoptionscanbeexercisedatanytimeuptoexpiry.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*OptionsContracts:Preliminaries In-the-Money Theexercisepriceislessthanthespotpriceoftheunderlyingasset. At-the-Money Theexercisepriceisequaltothespotpriceoftheunderlyingasset. Out-of-the-Money Theexercisepriceismorethanthespotpriceoftheunderlyingasset.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*OptionsContracts:Preliminaries IntrinsicValue Thedifferencebetweentheexercisepriceoftheoptionandthespotpriceoftheunderlyingasset. SpeculativeValue Thedifferencebetweentheoptionpremiumandtheintrinsicvalueoftheoption.OptionPremium=IntrinsicValueSpeculativeValue+McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.2CallOptions Calloptionsgivestheholdertheright,butnottheobligation,tobuyagivenquantityofsomeassetonorbeforesometimeinthefuture,atpricesagreedupontoday. Whenexercisingacalloption,you“callin”theasset.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*BasicCallOptionPricingRelationshipsatExpiry Atexpiry,anAmericancalloptionisworththesameasaEuropeanoptionwiththesamecharacteristics. Ifthecallisin-the-money,itisworthST-E. Ifthecallisout-of-the-money,itisworthless.CaT=CeT=Max[ST-E,0] Where STisthevalueofthestockatexpiry(timeT) Eistheexerciseprice. CaTisthevalueofanAmericancallatexpiry CeTisthevalueofaEuropeancallatexpiryMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CallOptionPayoffs-201009080706001020304050-40200-604060Stockprice($)Optionpayoffs($)BuyacallExerciseprice=$50McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CallOptionPayoffsWriteacallExerciseprice=$50McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CallOptionProfitsWriteacallBuyacallExerciseprice=$50;optionpremium=$10McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.3PutOptions Putoptionsgivestheholdertheright,butnottheobligation,tosellagivenquantityofanassetonorbeforesometimeinthefuture,atpricesagreedupontoday. Whenexercisingaput,you“put”theassettosomeone.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*BasicPutOptionPricingRelationshipsatExpiry Atexpiry,anAmericanputoptionisworththesameasaEuropeanoptionwiththesamecharacteristics. Iftheputisin-the-money,itisworthE-ST. Iftheputisout-of-the-money,itisworthless.PaT=PeT=Max[E-ST,0]McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.5ReadingTheWallStreetJournalThismakesacalloptionwiththisexercisepricein-the-moneyby$3.25=$138¼–$135.Putswiththisexercisepriceareout-of-the-money.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.5ReadingTheWallStreetJournalOnthisday,2,365calloptionswiththisexercisepriceweretraded.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.5ReadingTheWallStreetJournalTheCALLoptionwithastrikepriceof$135istradingfor$4.75.Sincetheoptionison100sharesofstock,buyingthisoptionwouldcost$475pluscommissions.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.5ReadingTheWallStreetJournalOnthisday,2,431putoptionswiththisexercisepriceweretraded.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.5ReadingTheWallStreetJournalThePUToptionwithastrikepriceof$135istradingfor$.8125.Sincetheoptionison100sharesofstock,buyingthisoptionwouldcost$81.25pluscommissions.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*22.6CombinationsofOptions Putsandcallscanserveasthebuildingblocksformorecomplexoptioncontracts. Ifyouunderstandthis,youcanbecomeafinancialengineer,tailoringtherisk-returnprofiletomeetyourclient’sneeds.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ProtectivePutStrategy:BuyaPutandBuytheUnderlyingStock:PayoffsatExpiryBuyaputwithanexercisepriceof$50BuythestockProtectivePutstrategyhasdownsideprotectionandupsidepotential$50$0$50ValueatexpiryValueofstockatexpiryMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*ProtectivePutStrategyProfitsBuyaputwithexercisepriceof$50for$10Buythestockat$40$40ProtectivePutstrategyhasdownsideprotectionandupsidepotential$40$0-$40$50ValueatexpiryValueofstockatexpiryMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*CoveredCallStrategySellacallwithexercisepriceof$50for$10Buythestockat$40$40Coveredcall$40$0-$40$10-$30$30$50ValueofstockatexpiryValueatexpiryMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.21-*LongStraddle:BuyaCallandaPutBuyaputwithanexercisepriceof$50for$10$40ALongStraddleonlymakesmoneyifthestockpricemoves$20awayfrom$50.$40$0-$20$50Buyacallwithanexercisepriceof$50for$10-$10$30$60$30$70ValueofstockatexpiryValueatexpiryMcGraw-Hil