Problem 15-12 (Static)Suppose you think Appx stock is going to appreciate substantially in value in the next year. Say the stock's current price, So, is $100,and the call option expiring in one year has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 to invest, youare considering three alternatives:a. Invest all $10,000 in the stock, buying 100 shares.b. Invest all $10,000 in 1,000 options (10 contracts).c. Buy 100 options (one contract) for $1,000 and invest the remaining $9,000 in a money market fund paying 4% interest annually.Required:a. Calculate the value of the investment for stock price one year from now? (Leave no cells blank - be certain to enter "0" whereverrequired.)a. All stocks (100 shares)b. All options (1,000 options)c. Bills + 100 optionsX Answer is complete but not entirely correct.$$$$808,00009,360$$$Price of Stock 1 Year from Now$100$11010,00009,360$$$11,0001,00010,360$120$12,000$1,000$ 11,360

Options are financial instruments that provide investors with the right, but not the obligation, to…

Answered: a. Invest all $10,000 in the stock,…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have $37,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14.7 percent and Stock Y with an expected return of 7.1 percent. Your goal is to create a portfolio with an expected return of 13 percent. All money must be invested. How much will you invest in Stock X? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Assume you purchased the right to sell 2,000 shares of Target stock in February 2022 at a strike price of $240 per share. Suppose Target stock sells for $212 per share immediately before your options’ expiration. What is the rate of return on your investment? What is your rate of return if the stock sells for $268 per share (think about it)? Assume your holding period for this investment is exactly three months. Note: A negaive value should be indicated by a minus sign. Do not round intermediate calculations. Enter your 3-month returns as a percent rounded to 2 decimal places.
You have $261,000 to invest in a stock portfolio. Your choices are Stock H, with an expected return of 14.1 percent, and Stock L, with an expected return of 11.2 percent. If your goal is to create a portfolio with an expected return of 12.55 percent, how much money will you invest in Stock H and in Stock L? Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Investment in Stock H Investment in Stock L
Suppose an investor buys 300 stocks for 3 months, the stock price is 10 yuan, and the annual interest rate for 3 months is fixed at 5%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 15 yuan or falls to 8 yuan after 3 months of hedging, what are the losses of this investor?
Suppose that you plan to invest in stock A, because you believe that stock A will appreciate in the next 6 months. The stock current price is $100, and a call option on stock A expiring in 6 months has an exercise price of $100 selling at $15 per option. And you have $7500 in hand to invest the following three strategies: A: Invest entirely in stock A. B: Invest entirely in call option on stock A. C: Buy call options the amount of calls is same as the number of shares we purchase in strategy A, and invest the remaining money in T-bills at interest rate whose annual interest rate is 10%. Suppose that the possible stock price are $90, $100, $110, and $120. (a) At expiration (after 6 months), compute the rates of return for each strategy given different possible stock prices. We don't consider the premium we’ve paid for holding call options in this case. (b) Given different stock price at expiration, which strategy would you like to choose? For example, if the stock price is $90, which…
IBM stock is currently trading at $100 per share. An investor purchases one Put option contra on IBM with a $100 strike and at a price of $3.00 per contract. Each options contract represer an interest in 100 underlying shares of stock. For each of the following scenarios determine i 7. the option is in the money, at the money, or out of the money. Show your work. A. When the option expires, IBM is trading at $98 B. When the option expires, IBM is trading at $90 C. When the option expires, IBM is trading at $97
Assume you purchase a put option contract (100 shares) for a price of 6.40 (each stock) for Microsoft (MSFT) that expire on August 12,2022 with the strike price of $285 on August 4, 2022. Look at the current price and fully explain whether you will exercise or not.
You buy a share of stock, write a 1-year call option with X = $85, and buy a 1-year put option with X = $85. Your net outlay to establish the entire portfolio is $83.3. Required: What is the payoff of your portfolio? What must be the risk-free interest rate? The stock pays no dividends. Note: Round your answer to 2 decimal places.
The common stock of Triangular File Company is selling at $91. A 13-week call option written on Triangular File's stock is selling for $9. The call's exercise price is $101. The risk-free interest rate is 8% per year. a. Suppose that puts on Triangular stock are not traded, but you want to buy one. Which combination will produce the same results? Buy call, invest PV(EX), sell stock short Sell call, invest PV(EX), sell stock short Buy call, lend PV(EX), buy stock Sell call, lend PV(EX), buy stock b. Suppose that puts are traded. What should a 13-week put with an exercise price of $101 sell for? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Put option price
Give typing answer with explanation and conclusion The XYZ Corporation stock currently sells for $52/share. The premium for a put option expiring in four weeks is $2.07. Suppose you buy 5 contracts of this put option. What is your maximum gain? (Hint: One option is called a contract, and each contract represents 100 shares of the underlying stock. Exchanges quote options prices in terms of the per-share price, not the total price an investor pays to own the contract.) A) $22,715 B) $26,000 C) $24,965 D) $23,750
The price of Chive Corp. stock will be either $67 or $91 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 4 percent. a. Suppose the current price of the company's stock is $75. What is the value of the call option if the exercise price is $65 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose the current price of the company's stock is $75. What is the value of the call option if the exercise price is $80 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Call value b. Call value
Compute the total and annual returns on the described investment. Six years after buying 200 shares of XYZ stock for $40 per share, you sell the stock for $12,300. The total return is %. (Do not round until the final answer. Then round to one decimal place as needed.)

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