Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, SO, is $50, anda call option expiring in one year has an exercise price, X, of $50 and is selling at a price, C, of $9. With $18, 900 to invest, you areconsidering three alternatives. a. Invest all $18, 900 in the stock, buying 378 shares. b. Invest all $18,900 in 2, 100 options (21 contracts). c.Buy 100 options (one contract) for $900, and invest the remaining $18,000 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 - becertain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of yourportfolio (Bills + 100 options)" answers to 2 decimal places.) The total value of your portfolio in six months for each of the following stockprices is: The percentage return of your portfolio in six months for each of the following stock prices is:

Answered: Image /qna-images/answer/e569a430-45c3-4d92-a2ae-6d804424552c.jpg

Answered: Suppose you think AppX stock is going…

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

See similar textbooks

Similar questions

You have $261,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.1 percent, and Stock L, with an expected return of 11.2 percent. If your goal is to create a portfolio with an expected return of 12.55 percent, how much money will you invest in Stock H and in Stock L? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Investment in Stock H Investment in Stock L
Suppose you have $28,000 to invest. You're considering Miller-Moore Equine Enterprises (MMEE), which is currently selling for $40 per share. You notice that a put option with a $40 strike is available with a premium of $2.80. Calculate your percentage return on the put option for the six-month holding period if the stock price declines to $36 per share. (Do not round intermediate calculations. Enter your 6-month return as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) Percentage return %
Suppose that you plan to invest in stock A, because you believe that stock A will appreciate in the next 6 months. The stock current price is $100, and a call option on stock A expiring in 6 months has an exercise price of $100 selling at $15 per option. And you have $7500 in hand to invest the following three strategies: A: Invest entirely in stock A. B: Invest entirely in call option on stock A. C: Buy call options the amount of calls is same as the number of shares we purchase in strategy A, and invest the remaining money in T-bills at interest rate whose annual interest rate is 10%. Suppose that the possible stock price are $90, $100, $110, and $120. (a) At expiration (after 6 months), compute the rates of return for each strategy given different possible stock prices. We don't consider the premium we’ve paid for holding call options in this case. (b) Given different stock price at expiration, which strategy would you like to choose? For example, if the stock price is $90, which…
Suppose you think company Y’s share is going to appreciate substantially in value next year. The current share of company Y is $150. One call option of this company’s share expiring in one year is currently available at $15 with an exercise price of $150. With $150,000 to invest, you are considering three investment strategies: a. Invest all $150,000 b. Invest all $150,000 in options c. Buy 5,000 options and invest the remaining amount in treasury bills paying 5% annually What is the value of your portfolio and your rate of return for each strategy for the following share prices one year from now? Summarise your results in a table and draw a graph showing return for each alternative (Hint: show return on Y axis and share price on X axis). Share prices $130, $140, $150, $160 and $170
You have $18,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 13 percent and Stock Y with an expected return of 11 percent. If your goal is to create a portfolio with an expected return of 12.18 percent, how much money will you invest in Stock X and Stock Y? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) Stock X Stock Y
Consider a call option on one share of BP with a strike price of $70 and exercise time 1 quarter (3 months). Suppose the current stock price for BP is S(0) = $65 per share. Suppose further that A(0) = $100, A(1) = $102 and two possible prices for S(1) are S $74 with probability 0.5, S(1) = $66 with probability 0.5. Evaluate the expected returns E(Ks) and E(Kc) for the stock and the option.
Suppose you think WW stock is going to appreciate substantially in value over the next six months. The stock's current price is $30 and the call option expiring in six months has an exercise price, X, of $35 and is selling at a premium (option price), C, of $12. You invest $12,000 on 1,000 options (10 contracts, each for 100 shares). What is the rate of return if the stock price six months from now is $50? Show your work.
Consider an American put option (K=$100) expiring in one year on a stock trading for $84. The return volatility on the stock is 27.3% and the riskless rate is 5%. Find the price of the option using a Binomial Model with two steps. (Respond with two decimal places, such as "-12.34") 26.59 Correct Answer: 18.28
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, So. Is $100, and a call option expiring in one year has an exercise price, X, of $100 and is selling at a price, Co. 01 S10. With $10,000 to invest, you are considering three alternatives. Invest all $10,000 in the stock, buying 100 shares. Invest all $10,000 in 1,000 options (10 contracts). Buy 100 options (one contract) for $1,000, and invest the remaining $9,000 in a money market fund paying 4% annual interest. What is your rate of retum for each alternative for the following four stock prices in one year?
You buy a share of stock, write a 1-year call option with X = $85, and buy a 1-year put option with X = $85. Your net outlay to establish the entire portfolio is $83.3. Required: What is the payoff of your portfolio? What must be the risk-free interest rate? The stock pays no dividends. Note: Round your answer to 2 decimal places.
The common stock of Triangular File Company is selling at $91. A 13-week call option written on Triangular File's stock is selling for $9. The call's exercise price is $101. The risk-free interest rate is 8% per year. a. Suppose that puts on Triangular stock are not traded, but you want to buy one. Which combination will produce the same results? Buy call, invest PV(EX), sell stock short Sell call, invest PV(EX), sell stock short Buy call, lend PV(EX), buy stock Sell call, lend PV(EX), buy stock b. Suppose that puts are traded. What should a 13-week put with an exercise price of $101 sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Put option price
Assume that after one time period, the value of a stock of 80 would be either 120 Or 60. Suppose that, for any y, at a cost of Cy, one can purchase at a time-0 the option to buy y shares of the stock at time-1 at a price of 90 per share. For what values of C, no-arbitrage will be possible? Using the arbitrage theorem, find the value of C for the data given for your group in the above question Derive the first order partial derivative of the Black-Scholes option cost C with respect to r. (FOCUS ONLY OM THE LAST TWO )

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS