Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, SO, is $50, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, C, of $9. With $18, 900 to invest, you are considering three alternatives. a. Invest all $18, 900 in the stock, buying 378 shares. b. Invest all $18,900 in 2, 100 options (21 contracts). c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 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 in 6 months? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.) 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:

Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, SO, is $50, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, C, of $9. With $18, 900 to invest, you are considering three alternatives. a. Invest all $18, 900 in the stock, buying 378 shares. b. Invest all $18,900 in 2, 100 options (21 contracts). c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 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 in 6 months? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round the "Percentage return of your portfolio (Bills + 100 options)" answers to 2 decimal places.) 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:

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 2Q: Two investors are evaluating General Electric’s stock for possible purchase. They agree on the...

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Two investors are evaluating General Electric’s stock for possible purchase. They agree on the expected value of D1, and also on the expected future dividend growth rate. Further, they agree on the risk of the stock. However, one investor normally holds stocks for 2 years and the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for General Electric’s stock. True or false? Explain.
Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, So, is $50, and a call option expiring in one year has an exercise price, X, of $50 and is selling at a price, Co, of $9. With $18,900 to invest, you are considering three alternatives. a. Invest all $18,900 in the stock, buying 378 shares. b. Invest all $18,900 in 2,100 options (9 contracts). c. Buy 100 options (one contract) for $900, and invest the remaining $18,000 in a money market fund paying 6% annual interest. What is your rate of return for each alternative for the following four stock prices in one year? Complete this question by entering your answers in the tabs below. In terms of In terms of dollar returns rate of return What is your rate of return for each alternative for the following four stock prices in one year? The total value of your portfolio in one year for each of the following stock prices is: Note: Leave no cells blank - be certain to enter…
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