Question
Upon some research, you forecast Fin101 stock to appreciate significantly in value over the next year. Suppose a share of Fin101 is currently trading for
Upon some research, you forecast Fin101 stock to appreciate significantly in value over the next year. Suppose a share of Fin101 is currently trading for $100 and that a call option on Fin101 stock expiring in one year with a strike price of $100 is trading for $10. Assume you have $9,000 to invest and consider the following two alternative strategies. In each, find the rate of return if the price of the stock at expiration is $80, $100, $110, or $120.
a. Invest all $9,000 in the options.
b. Buy 100 options and invest the remaining in a money market fund paying 5% annually
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