e stock is going to appreciate substantially in value in the next year. Say the
ID: 2620402 • Letter: E
Question
e stock is going to appreciate substantially in value in the next year. Say the stock's current pr ice, Se. is $150, and a call option expiring in one year has an exercise price, X of $150 and is selling at a price. C of SO with $15,000 to are considering three alternatives. a Invest all $15,000 in the stock, buying 100 shares. b. Invest all $15,000 in 1,500 options (15 contracts). C. Buy 100 options (one contract) for $1,000, and invest the remaining $14,000 in a money market fund paying 5% in interest over 6 months (10% per year) What is your rate of return for each alternative for the following four stock prices in 6 months? (L enter "o" wherever required. Negative amounts should be indicoted by a minus sign. Round the "Percentage return of your portfolio (Bills+ 100 options)" answers to 2 decimal places.) eave no cells blank -be certain to The total value of your portfolio in six months for each of the following stock prices is Price of Stock 6 Months from Now 150 $ 160 $ 170 Stock Price All stocks (100 shares) All options (1,500 options) Bills + 100 options 130Explanation / Answer
Answer A)
Portfolio value
Case 1 : in all stock : price of stock * number of stocks
Case 2 : in all Option : (exercise price -Price of stock ) * number of stocks
Case 3 : Bills + options : (invest in bill+ interest earned )+(exercise price -Price of stock ) * number of stocks
Portfolio return = Change in price of portfolio / initial investment
Related Questions
Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.