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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 $150, 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 $150, and a call option expiring in one year has an exercise price, X, of $150 and is selling at a price, C, of $12. With $14,400 to invest, you are considering three alternatives. a. Invest all $14,400 in the stock, buying 96 shares. b. Invest all $14,400 in 1,200 options (12 contracts). c. Buy 100 options (one contract) for $1,200, and invest the remaining $13,200 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 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 150 $ Stock Price $ 130 $ 160 $ 170 All stocks (96 shares) All options (1,200 options) Bills + 100 options The percentage return of your portfolio in six months for each of the following stock prices is: Price of Stock 6 Months from Now Stock Price $ 130 $ 150 $ 160 170 All stocks (96 shares) % % All options (1,200 options) Bills + 100 options % $ %
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