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Suppose you think AppX stock is going to appreciate substantially in value in the next year
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, Se, is $50, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, C, of $9. With $18,900 to invest, you are considering three alternatives.
a. Invest all $18,900 in the stock, buying 378 shares.
b. Invest all $18,900 in 2,100 options (21 contracts).
c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 in a money market fund paying 6% in interest over 6 months (12% per year).
What is your rate of return for each alternative for the following four stock prices in 6 months? (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.)
The total value of your portfolio in six months for each of the following stock prices is:
Price of Stock 6 Months from Now Stock Price S 30 S 501 5 60 S 70 All stocks (378 shares) • All options (2,100 options) • . . . Bills + 100 options • . . .
The percentage return of your portfolio in six months for each of the following stock prices is:
Price of Stock 6 Months from Now Stock Price $ 30 S 50 S 60 S 70 All stocks (378 shares) % % All options (2,100 options) • • • • Bills + 100 options • • • •
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