Investments, tenth edition

20.3

Stock Price

Portfolio

$95

$100

$105

$110

$115

$120

Portfolio A: All stock

$9,500

$10,000

$10,500

$11,000

$11,500

$12,000

Portfolio B: All options

0

0

5,000

10,000

15,000

20,000

Portfolio C: Call plus bills

9,270

9,270

9,770

10,270

10,770

11,270

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Final PDF to printer

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P A R T   V I

  Options, Futures, and Other Derivatives

 Portfolio   A  will be worth 100 times the share price. Portfolio  B  is worthless unless shares 

sell for more than the exercise price of the call. Once that point is reached, the portfolio is 

worth 1,000 times the excess of the stock price over the exercise price. Finally, portfolio  C

is worth $9,270 from the investment in T-bills plus any profits from the 100 call options. 

Remember that each of these portfolios involves the same $10,000 initial investment. The 

rates of return on these three portfolios are as follows: