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Suppose you think Agrium's stock is going to appreciate substantially in value in the next year. Say the stock's current price. So, is $75, and
Suppose you think Agrium's stock is going to appreciate substantially in value in the next year. Say the stock's current price. So, is $75, and a call option expiring in one year has an exercise price, X, of $75 and is selling at a price, C of $10. With $15,000 to invest, you are considering three alternatives. a. Invest all $15,000 in the stock, buying 200 shares b. Invest all $15,000 in 1,500 options (15 contracts) c. Buy 100 options (one contract) for $1,000, and invest the remaining $14,000 in a money market fund paying 4% in interest over 6 months (8% per year) What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "O" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" 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 $75 $85 $ $ $55 $ $95 $ Stock Price All stocks (200 shares) All options (1,500 options) Bills + 100 options The percentage return of your portfolio in six months for each of the following stock prices is: Percentage Return of Portfolio in Six Months $75 $85 $55 $95 % Stock Price All stocks (200 shares) All options (1,500 options) Bills + 100 options
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