Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, sø, is $150, and a call option expiring in one year has an exercise price, X, of $150 and is selling at a price, Co. of $10. With $15,000 to invest, you are considering three alternatives. a. Invest all $15,000 in the stock, buying 100 shares. b. Invest all $15,000 in 1,500 options (10 contracts). c. Buy 100 options (one contract) for $1,000, and invest the remaining $14,000 in a money market fund paying 5% annual interest. What is your rate of return for each alternative for the following four stock prices in one year?
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, sø, is $150, and a call option expiring in one year has an exercise price, X, of $150 and is selling at a price, Co. of $10. With $15,000 to invest, you are considering three alternatives. a. Invest all $15,000 in the stock, buying 100 shares. b. Invest all $15,000 in 1,500 options (10 contracts). c. Buy 100 options (one contract) for $1,000, and invest the remaining $14,000 in a money market fund paying 5% annual interest. What is your rate of return for each alternative for the following four stock prices in one year?
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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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, 50, is $150,
and a call option expiring in one year has an exercise price, X, of $150 and is selling at a price, Co, of $10. With $15,000 to invest, you
are considering three alternatives.
a. Invest all $15,000 in the stock, buying 100 shares.
b. Invest all $15,000 in 1,500 options (10 contracts).
c. Buy 100 options (one contract) for $1,000, and invest the remaining $14,000 in a money market fund paying 5% annual interest.
What is your rate of return for each alternative for the following four stock prices in one year?
Complete this question by entering your answers in the tabs below.
In terms of
In terms of
dollar returns rate of return
Answer is complete but not entirely correct.
What is your rate of return for each alternative for the following four stock prices in one year?
The percentage return of your portfolio in one year for each of the following stock prices is:
Note: Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign.
Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.
Stock Price
a. All stocks (100 shares)
b. All options (1,500 options)
c. Bills + 100 options
130
(13) %
(100)✔ %
(8.67) X %
Price of Stock one year from Now
$
S
160
7✔ %
150
0 %
(100) ✔ %
(8.67) X %
100 X %
4.67 %
< In terms of dollar returns
$
170
13✔ %
200 X %
11.33 %
In terms of rate of return >
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