Business
Business, 21.03.2020 03:17, walterzea70

Suppose you think FedEx stock is going to appreciate substantially in value in the next 6 months. Say thestock’s current price, S0, is $120, and the call option expiring in 6 months has an exercise price, X, of $120and is selling at a price, C, of $18. With $14,400 to invest, you are considering three alternatives.

a. Invest all $14,400 in the stock, buying 120 shares.

b. Invest all $14,400 in 800 options (8 contracts).

c. Buy 100 options (one contract) for $1,800, and invest the remaining $12,600 in a money market fundpaying 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?

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