Problem 20-6 Suppose you think Apple stock is going to appreciate substantially in value in the next...

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Finance

Problem 20-6
Suppose you think Apple stock is going to appreciatesubstantially in value in the next year. Say the stock’s currentprice, S₀, is $40, and a call option expiringin one year has an exercise price, X, of $40 and isselling at a price, C, of $15. With $15,000 to invest, youare considering three alternatives.
a. Invest all $15,000 in the stock, buying 375 shares.
b. Invest all $15,000 in 1,000 options (10 contracts).
c. Buy 100 options (one contract) for $1,500, and invest theremaining $13,500 in a money market fund paying 6% in interest over6 months (12% per year).
What is your rate of return for each alternative for thefollowing four stock prices in 6 months? (Leave no cellsblank - be certain to enter "0" wherever required. Negative amountsshould be indicated by a minus sign. Round the "Percentage returnof your portfolio (Bills + 100 options)" answers to 2 decimalplaces.)

The total value of your portfolio in six months for each of thefollowing stock prices is:
Prices of Stock 6 Months fromNow
Stock Prices $37 $40 $50 $60
All stocks (375 shares)
All options (1,000 options)
Bills + 100 options
The percentage return of your portfolio in six months for eachof the following stock prices is:
Price of Stock 6 Months from Now
Stock Prices $37 $40 $50 $60
All stocks (375 shares) _% % % ___%
All options (1,000 options)
Bills + 100 options

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Problem 20-6Suppose you think Apple stock is going to appreciatesubstantially in value in the next year. Say the stock’s currentprice, S0, is $40, and a call option expiringin one year has an exercise price, X, of $40 and isselling at a price, C, of $15. With $15,000 to invest, youare considering three alternatives.a. Invest all $15,000 in the stock, buying 375 shares.b. Invest all $15,000 in 1,000 options (10 contracts).c. Buy 100 options (one contract) for $1,500, and invest theremaining $13,500 in a money market fund paying 6% in interest over6 months (12% per year).What is your rate of return for each alternative for thefollowing four stock prices in 6 months? (Leave no cellsblank - be certain to enter "0" wherever required. Negative amountsshould be indicated by a minus sign. Round the "Percentage returnof your portfolio (Bills + 100 options)" answers to 2 decimalplaces.) The total value of your portfolio in six months for each of thefollowing stock prices is: Prices of Stock 6 Months fromNowStock Prices$37$40$50$60All stocks (375 shares)All options (1,000 options)Bills + 100 optionsThe percentage return of your portfolio in six months for eachof the following stock prices is:Price of Stock 6 Months from NowStock Prices$37$40$50$60All stocks (375 shares)___%____%____%_____%All options (1,000 options)Bills + 100 options

Stock Prices	$37	$40	$50	$60
All stocks (375 shares)
All options (1,000 options)
Bills + 100 options

Stock Prices	$37	$40	$50	$60
All stocks (375 shares)	___%	____%	____%	_____%
All options (1,000 options)
Bills + 100 options