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, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, Co, of $9. With $18,900 to invest, you are considering three alternatives. a. Invest all $18,900 in the stock, buying 378 shares. b. Invest all $18,900 in 2,100 options (9 contracts). c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 in a money market fund paying 6% annual interest. What is your rate of return for each alternative for the following four stock prices in one year? Complete this question by entering your answers in the tabs below. In terms of In terms of dollar returns rate of return What is your rate of return for each alternative for the following four stock prices in one year? The total value of your portfolio in one year for each of the following stock prices is: Note: 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. Stock Price a. All stocks (378 shares) b. All options (2,100 options) c. Bills 100 options Price of Stock one year from Now 30 $ 50 $ 60 ᏌᏊ $ 70 In terms of dollar returns In terms of rate of return > Show less▲
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, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, Co, of $9. With $18,900 to invest, you are considering three alternatives. a. Invest all $18,900 in the stock, buying 378 shares. b. Invest all $18,900 in 2,100 options (9 contracts). c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 in a money market fund paying 6% annual interest. What is your rate of return for each alternative for the following four stock prices in one year? Complete this question by entering your answers in the tabs below. In terms of In terms of dollar returns rate of return What is your rate of return for each alternative for the following four stock prices in one year? The total value of your portfolio in one year for each of the following stock prices is: Note: 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. Stock Price a. All stocks (378 shares) b. All options (2,100 options) c. Bills 100 options Price of Stock one year from Now 30 $ 50 $ 60 ᏌᏊ $ 70 In terms of dollar returns In terms of rate of return > Show less▲
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 14P
Related questions
Question
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, So, is $50,
and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, Co, of $9. With $18,900 to invest, you are
considering three alternatives.
a. Invest all $18,900 in the stock, buying 378 shares.
b. Invest all $18,900 in 2,100 options (9 contracts).
c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 in a money market fund paying 6% annual interest.
What is your rate of return for each alternative for the following four stock prices in one year?
Complete this question by entering your answers in the tabs below.
In terms of In terms of
dollar returns
rate of return
What is your rate of return for each alternative for the following four stock prices in one year?
The total value of your portfolio in one year for each of the following stock prices is:
Note: 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.
Stock Price
a. All stocks (378 shares)
b. All options (2,100 options)
c. Bills 100 options
Price of Stock one year from Now
30
$
50
$
60
ᏌᏊ
$
70
In terms of dollar returns
In terms of rate of return
>
Show less▲
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