Suppose you think Agrium’s stock is going to appreciate substantially in value in the next year. Say the stock’s current price, S0, 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 $18,000 in a money market fund paying 6% in interest over 6 months (12% per year)
What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" 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 | $30 | $50 | $60 | $70 | ||||
All stocks (378 shares) | $ | $ | $ | $ | ||||
All options (2,100 options) | ||||||||
Bills + 100 options | ||||||||
The percentage return of your portfolio in six months for each of the following stock prices is:
Percentage Return of Portfolio in Six Months | ||||||||
Stock Price | $30 | $50 | $60 | $70 | ||||
All stocks (378 shares) | % | % | % | % | ||||
All options (2,100 options) | ||||||||
Bills + 100 options | ||||||||
Suppose you think Agrium’s stock is going to appreciate substantially in value in the next year. Say the stock’s current...
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