Suppose you think Apple stock is going to appreciate substantially in value in the next year. Say the stock’s current price, S0, is $120, and a call option expiring in one year has an exercise price, X, of $120 and 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 fund paying 6% in interest over 6 months (12% per year).

Xinhong company is considering replacing one of its manufacturing machines. the machine has a book value of $39,000 and a remaining useful life of 5 years, at which time its salvage value will be zero. it has a current market value of $49,000. variable manufacturing costs are $33,300 per year for this machine. information on two alternative replacement machines follows. alternative a alternative b cost $ 115,000 $ 117,000 variable manufacturing costs per year 22,900 10,100 1. calculate the total change in net income if alternative a and b is adopted. 2. should xinhong keep or replace its manufacturing machine