Stock price: a. All stocks (100 shares)

b. All options (1,000 shares) c. Bills + 100 options

Price of Stock Six Months from Now

$80 $100 $110 8,000 10,000 11,000 0 0 10,000 9,360 9,360 10,360

$120 12,000 20,000 11,360

(part of the solutions)

I ALREADY GOT THE SOLUTIONS(ABOVE YOU CAN SEE IT AS A PROVE). I WANT TO SEE THE PROCESS, DO NOT DO IT ON EXCEL. I WANNA KNOW THE CALCULATIONS SO I CAN DO IT ON MY TEST.

Suppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stocks current price, S0, is $100, and the call option expiring in one year 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.

Invest all $10,000 in 1,000 options (10 contracts).

Buy 100 options (one contract) for $1,000 and invest the remaining $9,000 in a

money market fund paying 4% interest annually.

What is your rate of return for each alternative for four stock prices one year from now?

Summarize your results in the table and diagram below. (LO 15-1)

Rate of return on investment

	Price of Stock 1 Year from Now
	$80	$100	$110	$120
a. All stocks (100 shares)
b. All options (1,000 shares)
c. Bills + 100 options