Calculate the pre-tax rate of return in these two scenarios.

A. Buy 1,000 shares of XYZ common stock at $50 borrowing 50% of the amount necessary to buy it at a 2% interestrate. Sell the stock at $60 one year later paying back the loan at the same time.

B. Buy listed options at $400 for 1,000 shares of ABC giving you the right but not the obligation to buy the shares at $50 one year later. You exercise the option one year later when the stock price is $60. Also, use the attached chart to explain what is going on.

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