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 $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 "tiny_mce_markerquot; 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 |
% |
|
% |
|
% |
|
% |