Question

Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, So, 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 "O" wherever required.) Price of Stock 1 Year from Now $100 $110 $80 $120 a. All stocks (100 shares) b. All options (1,000 shares) c. 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 "O" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.) Price of Stock 1 Year from Now $100 $110 $80 $120 a. All stocks (100 shares) b. All options (1,000 shares) c. Bills + 100 options

Answer 1

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NPV, IRR, PBP,OCF, INDEX - Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins E AutoSum - Cut A A Wrap Text Calibri 11 General Copy Fill Merge & Center $ % Insert Delete Format Paste B I U 090 Conditional Format Cell Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox El18 EG FH El EJ EK EL 1 2 10000 100 x 100 3 1 INVESTMENT IN SHARES 2 PREMIUM PAID ON 1000 CALL OPTIONS 10000 1000 X 10 5 3 INVESTMENT IN BILLS = 9000 PREMIUM PAID ON 100 OPTIONS 100 X 10 = 1000 7 ANS 1 IN TERMS OF DOLLAR VALUE STOCK PRICE 9 80 100 110 120 ALL STOCKS (100) 10000 12000 10 8000 11000 80*100 100*100 110*100 120 100 11 12 ALL OPTIONS (1000) 10000 13 0 0 20000 (110-100) 1000 (120-100)* 1000 14 BILLS+100 OPTIONS 11360 15 9360 9360 10360 9000*(1+0.04) (110-100) *100 (9000 (1+0.04)) (9000 (1+0.04) 9000*(1+0.04) + (120-100)*100 16 17 18 ANS 2 IN TERMS OF % 19 OCF CASH FLOW STATW CURRENCY LOAN PREF AND DIV POLICY ARM, MSI,confid enceINDEX GM HPR AM |шI CROSS OVER TAX GROWTH SUST FCF HEDGING MONEY MARKET (- erences 130% WA X 08:17 TENG 06-11-2019

NPV, IRR, PBP,OCF, INDEX - Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins E AutoSum - Cut AC Wrap Text General Calibri 11 Copy Fill Merge & Center Insert Delete Format Paste B I U 000 Conditional Format Cell Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox El34 EG FH El EJ EK EL 17 18 ANS 2 IN TERMS OF % 19 20 STOCK PRICE 80 100 110 120 ALL STOCKS (100) 20.00% 0.00% 21 -20.00% 10.00% (8000-10000)/10000*100 (10000-10000)/10000*100 (11000-10000)/10000*100 (12000-10000)/10000*100 22 23 ALL OPTIONS (1000) 100.00% 24 -100% -100% 0.00% (0-10000)/10000*100 (10000-10000)/10000*100 (0-10000)/10000*100 (20000-10000)/10000*100 25 26 -6.40% 3.60% 13.60% 27 BILLS+ 100 OPTIONS -6.40% |(360-1000)/10000*100 (360+1000-1000)/10000*100 (360 2000-1000)/10000*100 (360-1000)/10000*100 28 29 30 31 32 33 34 ARM, MSI,confidence INDEX HEDGING MONEY MARKET TAX GROWTH SUST PREF AND DIV POLICY OCF CASH FLOW STATW CURRENCY LOAN GM HPR AM CROSS OVER FCF (- erences 130% W X 08:17 B TENG 06-11-2019