Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, Sø. is $75, and a call option expiring in one year has an exercise price, X, of $75 and is selling at a price, C, of $21. With $21,000 to invest, you are considering three alternatives. a. Invest all $21,000 in the stock, buying 280 shares. b. Invest all $21,000 in 1,000 options (10 contracts) c. Buy 100 options (one contract) for $2,100, and invest the remaining $18,900 in a money market fund paying 6% in interest over 6 months (12% per year). What is your rate of return for each alternative for the following four stock prices in 6 months? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.) The total value of your portfolio in six months for each of the following stock prices is: Stock Price All stocks (280 shares) All options (1.000 options) Bills 100 options $ Stock Price All stocks (280 shares) All options (1.000 options) Bills + 100 options S Price of Stock 6 Months from Now 55 $ 75 $ The percentage return of your portfolio in six months for each of the following stock prices is: 55 % Price of Stock 6 Months from Now $ 75 $ 85 $ % 85 $ % 95 95 %
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, Sø. is $75, and a call option expiring in one year has an exercise price, X, of $75 and is selling at a price, C, of $21. With $21,000 to invest, you are considering three alternatives. a. Invest all $21,000 in the stock, buying 280 shares. b. Invest all $21,000 in 1,000 options (10 contracts) c. Buy 100 options (one contract) for $2,100, and invest the remaining $18,900 in a money market fund paying 6% in interest over 6 months (12% per year). What is your rate of return for each alternative for the following four stock prices in 6 months? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.) The total value of your portfolio in six months for each of the following stock prices is: Stock Price All stocks (280 shares) All options (1.000 options) Bills 100 options $ Stock Price All stocks (280 shares) All options (1.000 options) Bills + 100 options S Price of Stock 6 Months from Now 55 $ 75 $ The percentage return of your portfolio in six months for each of the following stock prices is: 55 % Price of Stock 6 Months from Now $ 75 $ 85 $ % 85 $ % 95 95 %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, Sø. is $75,
and a call option expiring in one year has an exercise price, X, of $75 and is selling at a price, C, of $21. With $21,000 to invest, you are
considering three alternatives.
a. Invest all $21,000 in the stock, buying 280 shares.
b. Invest all $21,000 in 1,000 options (10 contracts).
c. Buy 100 options (one contract) for $2,100, and invest the remaining $18,900 in a money market fund paying 6% in interest over 6
months (12% per year).
What is your rate of return for each alternative for the following four stock prices in 6 months? (Leave no cells blank - be certain to
enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your
portfolio (Bills + 100 options)" answers to 2 decimal places.)
The total value of your portfolio in six months for each of the following stock prices is:
Stock Price
All stocks (280 shares)
All options (1.000 options)
Bills 100 options
S
Stock Price
All stocks (280 shares)
All options (1,000 options)
Bills 100 options
$
Price of Stock 6 Months from Now
55 $
75 $
The percentage return of your portfolio in six months for each of the following stock prices is:
55
%
Price of Stock 6 Months from Now
$
75
$
85
85 $
%
$
95
95
%
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