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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, you are 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. b. Calculate the rate of return on investment for stock price one year from now? Note: Leave no cells blank - be certain to enter "O" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place. a. All stocks (100 shares) b. All options (1,000 options) c. Bills +100 options $80 % % % Price of Stock 1 Year from Now $100 % % % $110 $120 % % % % % %

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, you are 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. b. Calculate the rate of return on investment for stock price one year from now? Note: Leave no cells blank - be certain to enter "O" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place. a. All stocks (100 shares) b. All options (1,000 options) c. Bills +100 options $80 % % % Price of Stock 1 Year from Now $100 % % % $110 $120 % % % % % %

Essentials Of Investments
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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Please answer correctly Do not give the wrong answer by answering each column appropriately
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, you are 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.
Transcribed Image Text: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, you are 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.
b. Calculate the rate of return on investment for stock price one year from now? Note: Leave no cells blank - be certain to enter "O" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place. a. All stocks (100 shares) b. All options (1,000 options) c. Bills +100 options $80 % % % Price of Stock 1 Year from Now $100 % % % $110 $120 % % % % % %
Transcribed Image Text:b. Calculate the rate of return on investment for stock price one year from now? Note: Leave no cells blank - be certain to enter "O" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place. a. All stocks (100 shares) b. All options (1,000 options) c. Bills +100 options $80 % % % Price of Stock 1 Year from Now $100 % % % $110 $120 % % % % % %
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