Suppose you think of ABC Co. is going to appreciate substantially in value in the next year. Say the stock's current price is $45, and the call option expiring in one year has an exercise price of $45 and is selling at a price of $ 4.5. With 59,000 to invest, you are considering three alternatives.
a. Invest all 59,000 in the stock, buying 200 shares.
b. Invest all 59,000 in 2000 options.
c. Buy 250 options for $1,125 and invest the remaining $7,835 in T-bills paying 5% interest annually.
What is your payoff for each alternative when the stock price is $50 one year from now? Summarize your results in the table below.
Price of stock 1 year from now 50
a. All stocks
b. all options
c. T- bills+ 100 options
Question 8.
The stock price of ABC Inc. is currently $100. The stock price from now will be either $140 or $90 with equal probabilities. The interests rates at wih=ch investors can borrow is 10%. Uing the binomial model, the value of a call option with an exercise price of $130 and an expiration date one year from now should be worth _today?
Suppose you think of ABC Co. is going to appreciate substantially in value in the next year. Say the stock's current price is $45, and the call option expiring in one year has an exercise price of $45 and is selling at a price of $ 4.5. With 59,000 to invest, you are considering three alternatives.
a. Invest all 59,000 in the stock, buying 200 shares.
b. Invest all 59,000 in 2000 options.
c. Buy 250 options for $1,125 and invest the remaining $7,835 in T-bills paying 5% interest annually.
What is your payoff for each alternative when the stock price is $50 one year from now? Summarize your results in the table below.
Price of stock 1 year from now 50
a. All stocks
b. all options
c. T- bills+ 100 options
Question 8.
The stock price of ABC Inc. is currently $100. The stock price from now will be either $140 or $90 with equal probabilities. The interests rates at wih=ch investors can borrow is 10%. Uing the binomial model, the value of a call option with an exercise price of $130 and an expiration date one year from now should be worth _today?
Related questions
uppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stockâs current price, S0, 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.
a. Calculate the value of the investment for stock price one year from now? (Leave no cells blank - be certain to enter "0" wherever required.)
| Price of Stock 1 Year from Now | ||||
| $80 | $100 | $110 | $120 | |
| All stocks (100 shares) | $ | $ | $ | $ |
| All options (1,000 shares) | $ | $ | $ | $ |
| Bills + 100 options | $ | $ | $ | $ |
b. Calculate the rate of return on investment for stock price one year from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.)
| Percentage of Stock 1 Year from Now | ||||
| $80 | $100 | $110 | $120 | |
| All stocks (100 shares) | % | % | % | % |
| All options (1,000 shares) | % | % | % | % |
| Bills + 100 options | % | % | % | % |
Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say the stockâs current price, S0, is $150, and the call option expiring in 6 months has an exercise price, X, of $150 and is selling at a price, C, of $10. With $15,000 to invest, you 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 $14,000 in a money market fund paying 5% in interest over 6 months (10% per year). |
| What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" and "%" signs in your response.) |
| The total value of your portfolio in six months for each of the following stock prices is: |
| Price of Stock 6 Months from Now | ||||||||
| Stock Price | $130 | $150 | $160 | $170 | ||||
| All stocks (100 shares) | $ | $ | $ | $ | ||||
| All options (1,500 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 | $130 | $150 | $160 | $170 | ||||
| All stocks (100 shares) | % | % | % | % | ||||
| All options (1,500 options) | % | % | % | % | ||||
| Bills + 100 options | % | % | % | % | ||||
| Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say the stockâs current price, S0, is $200, and the call option expiring in 6 months has an exercise price, X, of $200 and is selling at a price, C, of $10. With $20,000 to invest, you are considering three alternatives. |
| a. | Invest all $20,000 in the stock, buying 100 shares. |
| b. | Invest all $20,000 in 2,000 options (20 contracts). |
| c. | Buy 100 options (one contract) for $1,000, and invest the remaining $19,000 in a money market fund paying 4% in interest over 6 months (8% per year). |
| What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" and "%" signs in your response.) |
| The total value of your portfolio in six months for each of the following stock prices is: |
| Price of Stock 6 Months from Now | ||||||||
| Stock Price | $180 | $200 | $210 | $220 | ||||
| All stocks (100 shares) | $ | $ | $ | $ | ||||
| All options (2,000 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 | $180 | $200 | $210 | $220 | ||||
| All stocks (100 shares) | % | % | % | % | ||||
| All options (2,000 options) | % | % | % | % | ||||
| Bills + 100 options | % | % | % | % | ||||
