Reference no: EM132966863
Question - Suppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stock's current price, S0, is $100, and a call option expiring in one year has an exercise price, X, of $100 and is selling at a price, C, of $23. With $23,000 to invest, you are considering three alternatives.
a. Invest all $23,000 in the stock, buying 230 shares.
b. Invest all $23,000 in 1,000 options (10 contracts).
c. Buy 100 options (one contract) for $2,300, and invest the remaining $20,700 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?
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:
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