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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 $200,
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 $200, and the call option expiring in 6 months has an exercise price, X, of $200 and is selling at a price, C, of $10. With $20,000 to invest, you are considering three alternatives. a. Invest all $20,000 in the stock, buying 100 shares. b. Invest all $20,000 in 2.000 options (20 contracts). C. Buy 100 options (one contract) for $1,000, and invest the remaining $19,000 in a money market fund paying 4% in interest over 6 months (8% per year). What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts sho indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" 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 $180 $200 $210 $220 Stock Price All stocks (100 shares) All options (2,000 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 $180 $200 $210 $220 Stock Price All stocks (100 shares) All options (2,000 options) Bills + 100 options
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