7. You are considering the results of the following strategies:

Alternative 1: Allocate 100% of your wealth to buying stock.

Alternative 2: Allocate 93% of your wealth to buying Treasury Bills and the remaining 7% to buying call options on S&P 500 index.

• Your wealth is $100
• The current price of stock is $100
• The call option premium is $7 with an exercise price of 105
• Treasury Bill return is 4.5% and its price is $93.

Show your final results in the following table on next page:

Alternative #1

Alternative #2Likely Stock PricesGain or LossROR Treasury Bill Year-End ResultsCall Value at year-endPortfolio Value at year-endGain or LossROR

100

70

130