Question
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stocks current price, S 0 , is
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stocks current price, S0, is $300, and a call option expiring in one year has an exercise price, X, of $300 and is selling at a price, C, of $6. With $6,000 to invest, you are considering three alternatives. a. Invest all $6,000 in the stock, buying 20 shares. b. Invest all $6,000 in 1,000 options (10 contracts). c. Buy 100 options (one contract) for $600, and invest the remaining $5,400 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:
The percentage return of your portfolio in six months for each of the following stock prices is:
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