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Suppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stock's current price, So, is $120 and
Suppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stock's current price, So, is $120 and a call option expiring in one year has an exercise price, X, of $120 and is selling at a price, C, of $18. With $14,400 to invest, you are considering three alternatives a. Invest all $14,400 in the stock, buying 120 shares b. Invest all $14,400 in 800 options (8 contracts) c. Buy 100 options (one contract) for $1,800, and invest the remaining $12,600 in a money market fund paying 6% in interest over 6 months (12% per year) What is your rate of return for each alternative for the following four stock prices in one year? (Leave no cells blank - be certain to enter "O" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills +100 options)" answers to 2 decimal places.) The total value of your portfolio in six months for each of the following stock prices is: Price of Stock One Year from Now 100 120 130 Stock Price All stocks (120 shares) All options (800 options) Bills 100 options 140 The percentage return of your portfolio in six months for each of the following stock prices is Price of Stock One Year from Now 120 Stock Price All stocks (120 shares) All options (800 options) Bills100 options 100 130 140
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