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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, Se, is $125,
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, Se, is $125, and a call option expiring in one year has an exercise price, X, of $125 and is selling at a price, C, of $13. With $39,000 to invest, you are considering three alternatives. a. Invest all $39,000 in the stock, buying 312 shares. b. Invest all $39,000 in 3,000 options (30 contracts). c. Buy 100 options (one contract) for $1,300, and invest the remaining $37,700 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 Stock Price All stocks (312 shares) All options (3,000 options) Bills 100 options 135 $ 145 $ 105 $ 125 $ 32,760 0 30,000 39,208 The total value of your portfolio in six months for each of the following stock prices is: Price of Stock 6 Months from Now Stock Price All stocks (312 shares) All options (3,000 options) Bills +100 options 135 $ 145 $ 105 $ 125 $ 32,760 0 39,208 0 30,000 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 All stocks (312 shares) All options (3,000 options) Bills+100 options $ 105 (16) % (100) $ 125 (100) $ 135 $ 145 100 % % %
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