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Suppose you think AppX 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 AppX 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 in 6 months? (Leave no cells blank - be certain to enter "0" 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 6 Months from Now 55 $ 75 $ 85 $ $ 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: $ 55 Price of Stock 6 Months from Now 75 $ 85 % % $ 95 % % Stock Price All stocks (200 shares) All options (1,500 options) Bills + 100 options
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