Suppose you think FedEx stock is going to appreciate substantially in value in t

Question

Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say the stock's current price, S0, is $300, and the call option expiring in 6 months has an exercise price, X, of $300 and is selling at a price, C, of $6. With $6,000 to invest, you are considering three alternatives. Invest all $6,000 in the stock, buying 20 shares. Invest all $6,000 in 1,000 options (10 contracts). Buy 100 options (one contract) for $600, and invest the remaining $5,400 in a money market fund paying 6% in interest over 6 months (12% per year).What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" and"%" signs in your response.)The total value of your portfolio in six months for each of the following stock prices is: The percentage return of your portfolio in six months for each of the following stock prices is:

Explanation / Answer

Total value of Portfolio in six months Stock Price ($) 280 300 310 320 All Stock (20 shares) 20 x 280 = 5600 20 x 300 = 6000 20 x 310 = 6200 20 x 320= 6400 All options (1000 options) 0 0 1000x (310-300)= 10000 1000x (320-300)= 20000 Bill + 100 Options 324 324 324+(100x10) 1324 324+(100 x20) 2324 % of return in six months   MP 280 MP300 MP310 MP 320 Workings % Workings % Workings % Workings % All Stock (20 shares) (5600-6000/6000) x 100= -6.67 (6000-6000/6000) x 100= 0 (6200-6000/6000) x 100= 3.33 (6400-6000/6000) x 100= 6.67 All options (1000 options) (0-6000/6000) x 100= -100 (0-6000/6000) x 100= -100 (10000-6000/6000) x 100= 66.67 (20000-6000/6000) x 100= 233.33 Bill + 100 Options (324-6000/6000) x 100= -94.6 (324-6000/6000) x 100= -94.6 (1324-6000/6000) x 100= -77.93 (2324-6000/6000) x 100= -61.27 MP = Market price after six month

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