What is total value of the investment for alternative A?(sample answer: $185.75) b. What is your rate of return for alternative A?(sample answer: 25.30%) c. What is total value of the investment for alternative C?(sample answer: $185.75) d. What is your rate of return for alternative C?(sample answer: 25.30%)
Suppose you think Tesla stock is going to appreciate substantially in value in the next year. Say the stock’s current price, S, is $400, and a call option expiring in one year has an exercise price, X, of $390 and is selling at a price, C, of $40. With $40,000 to invest, you are considering three investment alternatives.
Alternative A: Invest all $40,000 in the stock, buying 100 shares.
Alternative B: Invest all $40,000 in 1,000 options (10 contracts).
Alternative C: Buy 100 options (one contract) for $4,000, and invest the remaining fund in a
Suppose Tesla stock goes up in price to $600 one year later.
a. What is total value of the investment for alternative A?(sample answer: $185.75)
b. What is your
c. What is total value of the investment for alternative C?(sample answer: $185.75)
d. What is your rate of return for alternative C?(sample answer: 25.30%)
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