Question
Question 5: You are thinking about investing in a stock: the current price of the stock is 100$ and there is a call option with
Question 5: You are thinking about investing in a stock: the current price of the stock is 100$ and there is a call option with a strike price of 100 $ for a premium of 10$. You have 10,000 $ to invest and are thinking of investing in the following strategies:
1. invest all 10,00$ in stock,
2. invest all 10,000$ in stock options
3. Buy 100 options for 1,000$ and invest the remaining 9,000% at the risk-free rate of 4%.
Please find the value (payoff) and return of the payoff (% over 10,000$ invested) of each strategy if the stock price has the 4 possible scenarios at expiration (1 year from now): 80$, 100$, 120$, and 140$.
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