Question

5. Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock’s current price, S₀, 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.) Answer is complete but not entirely correct. Price of Stock 1 Year from Now $80 $100 $110 $120 a. All stocks (100 shares) (2,000) 1,000 2,000 (10,000)S (10,000)S b. All options (1,000 shares) 0 10,000 c. Bills 100 options (640) (640) 360 1,360

Answer 1

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NPV, IRR, PBP,OCF, INDEX - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins Z AutoSum Cut Wrap Text Calibri 11 General Copy Fill Merge & Center $ % Insert Delete Format Paste в IU* 00 00 Conditional Format Cell Sort & Find & Format Painter Clear Filter Select Formatting as Table Styles Clipboard Font Alignment Number Styles Cells Editing fox EJ18 EG FH El FI ЕК 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 9 STOCK PRICE 80 100 110 120 ALL STOCKS (100) 8000 10 10000 11000 12000 80*100 100*100 110 100 120 100 11 12 ALL OPTIONS (1000) 13 0 0 10000 20000 |(110-100) 1000 (120-100) 1000 14 BILLS+100 OPTIONS 10360 15 9360 9360 11360 9000*(1+0.04) (120-100) *100 (9000 (1+0.04)) (9000 (1+0.04)) 9000*(1+0.04) + (110-100)*100 16 17 18 ANS 2 IN TERMS OF % 19 GM HPR AM PREF AND DIV POLICY OCF CASH FLOW STATW CURRENCYLOAN CROSS OVER |шI TAX GROWTH SUST ARM, MSI,confid enceINDEX FCF HEDGING MONEY MARKET Re erences 130% WA 08:52 ENG 24-11-2019

NPV, IRR, PBP,OCF, INDEX - Microsoft Excel (Product Activation Failed) Page Layout Formulas File Home Insert Data Review View Add-Ins E AutoSum - Cut Wrap Text Calibri 11 General 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 EJ34 EG FH El EJ ЕК EL 17 18 ANS 2 IN TERMS OF % 19 20 STOCK PRICE 80 100 110 120 ALL STOCKS (100) 20.00% -20.00% 21 0.00% 10.00% |(10000-10000)/10000*100 (11000-10000)/10000*100 (8000-10000)/10000*100 (12000-10000)/10000*100 22 23 ALL OPTIONS (1000) -100% 24 -100% 0.00% 100.00% (0-10000)/10000*100 (0-10000)/10000*100 (10000-10000)/10000*100 (20000-10000)/10000*100 25 26 13.60% -6.40% 27 BILLS+ 100 OPTIONS -6.40% 3.60% (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 GM HPR AM OCF CASH FLOW STATW CURRENCYLOAN TAX GROWTH SUST CROSS OVER FCF PREF AND DIV POLICY erences 130% WA 08:52 ENG 24-11-2019