Question
Hi I need help solving the following problem: Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months.
Hi I need help solving the following problem:
Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say the stocks current price, S0, is $150, and the call option expiring in 6 months has an exercise price, X, of $150 and is selling at a price, C, of $6. With $15,000 to invest, you are considering three alternatives. |
a. | Invest all $15,000 in the stock, buying 100 shares. |
b. | Invest all $15,000 in 2,500 options (25 contracts). |
c. | Buy 100 options (one contract) for $600, and invest the remaining $14,400 in a money market fund paying 4% in interest over 6 months (8% per year). |
What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" and "%" signs in your response.) |
The total value of your portfolio in six months for each of the following stock prices is: |
Price of Stock 6 Months from Now | ||||||||
Stock Price | $130 | $150 | $160 | $170 | ||||
All stocks (100 shares) | $ | $ | $ | $ | ||||
All options (2,500 options) | $ | $ | $ | $ | ||||
Bills + 100 options | $ | $ | $ | $ | ||||
The percentage return of your portfolio in six months for each of the following stock prices is: |
Price of Stock 6 Months from Now | ||||||||
Stock Price | $130 | $150 | $160 | $170 | ||||
All stocks (100 shares) | % | % | % | % | ||||
All options (2,500 options) | % | % | % | % | ||||
Bills + 100 options | % | % | % | % | ||||
Thank you
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