Question
In: Finance
Problem 20-6 Suppose you think Apple stock is going to appreciate substantially in value in the...
Problem 20-6
Suppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stock’s current price, S0, is $40, and a call option expiring in one year has an exercise price, X, of $40 and is selling at a price, C, of $15. With $15,000 to invest, you are 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 the remaining $13,500 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:
Prices of Stock 6 Months from Now
| 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 each of 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 |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose you think Apple stock is going to appreciate substantially in value in the next year....
Suppose you think Apple stock is going to appreciate
substantially in value in the next year. Say the stock’s current
price, S0, is $200, and a call option expiring
in one year has an exercise price, X, of $200 and is
selling at a price, C, of $20. With $20,000 to invest, you
are considering three alternatives.
a. Invest all $20,000 in the stock, buying 100 shares.
b. Invest all $20,000 in 1,000 options (10 contracts).
c. Buy 100 options...
Suppose you think FedEx stock is going to appreciate substantially in value in the next 6...
Suppose you think FedEx stock is going to appreciate
substantially in value in the next 6 months. Say the stock’s
current price, S0, is $200, and the call option
expiring in 6 months has an exercise price, X, of $200 and
is selling at a price, C, of $20. With $20,000 to invest,
you are considering three alternatives.
a.
Invest all $20,000 in the stock,
buying 100 shares.
b.
Invest all $20,000 in 1,000
options (10 contracts).
c.
Buy 100...
Q12. Suppose you think AppX stock is going to appreciate substantially in value in the next...
Q12. 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 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...
Why did Apple stock increase on 6/13/19 and 6/20/19
Why did Apple stock increase on 6/13/19 and 6/20/19
Problem 2-26 Refer to the stock options on Apple in the Figure 2.9. Suppose you buy...
Problem 2-26
Refer to the stock options on Apple in the Figure 2.9. Suppose
you buy a October expiration call option with exercise price
$360.
a-1.
If the stock price in October is $370, will you exercise your
call?
Yes
No
a-2.
What is the net profit/loss on your position? (Input
the amount as a positive value.)
(Click to select)Net lossNet profit
$
a-3.
What is the rate of return on your position? (Negative
value should be indicated by a...
Problem 6-6 Free Cash Flow Model (LO3, CFA2) You are going to value Lauryn’s Doll Co....
Problem 6-6 Free Cash Flow Model (LO3, CFA2)
You are going to value Lauryn’s Doll Co. using the FCF model.
After consulting various sources, you find that Lauryn's has a
reported equity beta of 1.5, a debt-to-equity ratio of 0.5, and a
tax rate of 40 percent. Assume a risk-free rate of 5 percent and a
market risk premium of 8 percent. Lauryn’s Doll Co. had EBIT last
year of $47 million, which is net of a depreciation expense of...
You think that a stock price is going to swing into a certain range. Hence, in...
You think that a stock price is going to swing into a certain
range. Hence, in order to limit your risk (and your return as
well), you decide to buy one put for $7 with exercise price of 110;
buy one put for $1 with exercise price of 95; sell one put for $4
with exercise price of 105; and sell one put for $2 with exercise
price of $100. (a) What is your maximum profit and maximum loss of...
You think that a stock price is going to swing into a certain range. Hence, in...
You think that a stock price is going to swing into a certain
range. Hence, in order to limit your risk (and your return as
well), you decide to buy one put for $7 with exercise price of 110;
buy one put for $1 with exercise price of 95; sell one put for $4
with exercise price of 105; and sell one put for $2 with exercise
price of $100.
(a) What is your maximum profit and maximum loss of...
Refer to the stock options on Apple in the Figure 2.10. Suppose you buy an October...
Refer to the stock options on Apple in the Figure 2.10. Suppose
you buy an October expiration call option with exercise price
$105.
APPLE [Underlying Stock Price = $101.05]
Expiration Strike Call Put
September 95 6.20 0.21
October 95 6.35 0.33
September 100 2.20 1.18
October 100 2.62 1.55
September 105 0.36 4.35
October 105 0.66 4.75
a-1. If the stock price in October is $106,
will you exercise your call?
Yes
No
a-2. What is the net profit/loss on...
Suppose Contrail Air, Inc. is going to repurchase $22,800 shares of stock. The market value Balance...
Suppose Contrail Air, Inc. is going to repurchase $22,800 shares
of stock. The market value Balance Sheet is provided below.
Repurchase
$22,800
Shares outstanding
12,000
Dividend per share
$1.20
Market Value Balance Sheet
Cash
$55,000
Equity
$465,000
Fixed assets
$410,000
Total
$465,000
Total
$465,000
What will the price per share be after the repurchase?
42.75
38.75
21.96
35.13
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