Hi I need help solving the following problem: Suppose you think FedEx stock is g
ID: 2795522 • Letter: H
Question
Hi I need help solving the following problem:
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 $150, and the call option expiring in 6 months has an exercise price, X, of $150 and is selling at a price, C, of $6. With $15,000 to invest, you are considering three alternatives.
Buy 100 options (one contract) for $600, and invest the remaining $14,400 in a money market fund paying 4% in interest over 6 months (8% per year).
What is your rate of return for each alternative for the following four stock prices 6 months from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" and "%" signs in your response.)
The percentage return of your portfolio in six months for each of the following stock prices is:
Thank you
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 $150, and the call option expiring in 6 months has an exercise price, X, of $150 and is selling at a price, C, of $6. With $15,000 to invest, you are considering three alternatives.
Explanation / Answer
The stock price is calculated as = 100* Price
Price of options is calculated as = 2500* (Price - 150) . The options are priced at zero if they are lower than the cost price.
Price of bills+Options is calculated as = 14400*104% + 100* (Price - 150)
Returns are computed with a single formula = [(Price as computed above- 15000)/ 15000] * 100
Price of Stock 6 Months from Now Stock Price $130 $150 $160 $170 All stocks (100 shares) 13000 $15,000 $16,000 $17,000 All options (2,500 options) 0 0 25000 50000 Bills + 100 options 14976 14976 15976 16976 Price of Stock 6 Months from Now Stock Price $130 $150 $160 $170 All stocks (100 shares) -13.33% 0.00% 6.67% 13.33% All options (2,500 options) -100.00% -100.00% 66.67% 233.33% Bills + 100 options -0.16% -0.16% 6.51% 13.17%