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22. Suppose you think Walmart stock is going to appreciate substantially in value in the next 6 months Say the stock's current price, So, is
22. Suppose you think Walmart stock is going to appreciate substantially in value in the next 6 months Say the stock's current price, So, is $100, and the call option expiring in 6 months has an exercise price, X of $100 and is selling at a price, C, of $10. With S10,000 to invest, you are considering three alternatives a. Invest all $10,000 in the stock, buying 100 shares. b. Invest all $10,000 in 1,000 options (10 contracts) c. Buy 100 options (one contract) for $1,000, and invest the remaining $9000 in a money market fund paying 4% in interest over 6 months (8% per year) What is your dollar value and rate of return for each alternative for four stock prices one year from now? Summarize your results in the table (Fill out your answers for each of the investment (a). (b). (c) under each of the stock prices listed in the table. Show your work how to get the answerS) In terms of dollar value, based on a $10,000 investment Price of Stock 6 Months from Now $80 Stock Price All stocks (100 shares) All options (1,000 options) Bills + 100 options $100 $110 $120 In terms of rate of return, based on a $10,000 investment Price of Stock 6 Months from Now Stock Price All stocks (100 shares) All options (1,000 options) Bills+ 100 options $80 $100 $110 $120 0 0 0 0 0 0 0 0
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