Question
5. You believe Tesla is going to appreciate substantially in value in the next 3 months. Say the stock's current price, S0, is $100, and
5. You believe Tesla is going to appreciate substantially in value in the next 3 months. Say the stock's current price, S0, is $100, and the call option expiring in 3 months has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 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 $9,000 in a money market fund paying 2% in interest over 3 months (8% per year). What is your rate of return for each alternative for the following four stock prices 3 months from now? Summarize your results in the table below.
I would be very happy if you explain the processes and how they are done with the steps. thank you in advance
Price of Stock 6 Months from Now $80 $100 $110 $120 a. All stocks (100 shares) b. All options (1,000 shares) C Bills + 100 optionsStep by Step Solution
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