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. Required: a. Calculate the value of the investment for stock price one year from now? Note: Leave no cells blank - be certain to enter "O" wherever required. a. All stocks (100 shares) b. All options (1,000 options) c. Bills 100 options $80 $100 Price of Stock 1 Year from Now $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. Required: a. Calculate the value of the investment for stock price one year from now? Note: Leave no cells blank - be certain to enter "O" wherever required. a. All stocks (100 shares) b. All options (1,000 options) c. Bills 100 options $80 $100 Price of Stock 1 Year from Now $110 $120
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, 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.
Required:
a. Calculate the value of the investment for stock price one year from now?
Note: Leave no cells blank - be certain to enter "O" wherever required.
a. All stocks (100 shares)
b. All options (1,000 options)
c. Bills 100 options
$80
$100
Price of Stock 1 Year from Now
$110
$120
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