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Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say the stock's current price, So, is $50,
Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say the stock's current price, So, is $50, and the call option expiring in 6 months has an exercise price, X, of $50 and is selling at a price, C, of $16. With $20,800 to invest, you are considering three alternatives a. Invest all $20,800 in the stock, buying 416 shares b. Invest all $20,800 in 1,300 options (13 contracts) c. Buy 100 options (one contract) for $1,600, and invest the remaining $19,200 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 6 months from now? (Leave no cells blank - be certain to enter "O" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "S" and "%" signs in your response.) The total value of your portfolio in six months for each of the following stock prices is Price of Stock 6 Months from Now $48 $60 Stock Price All stocks (416 shares) All options (1,300 options) Bills 100 options $50 $70 The percentage return of your portfolio in six months for each of the following stock prices is Price of Stock 6 Months from Now $50 $60 $70 Stock Price All stocks (416 shares) All options (1,300 options) Bills +100 options $48
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