Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stocks current price, S0, is $100, and a call option expiring in one year has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 to invest, you are considering three alternatives. a. Invest all $10,000 in the stock, buying 100 shares. b. Invest all $10,000 in 1,000 options (10 contracts). c. Buy 100 options (one contract) for $1,000, and invest the remaining $9,000 in a money market fund paying 4% annual interest. What is your rate of return for each alternative for the following four stock prices in one year? Summarize your results in the table and diagram below. Price of Stock One Year from Now $80 $100 $110 $120 a. All stocks (100 shares) b. All options (1,000 shares) c. Bills + 100 options

6. Suppose you think AppX stock is going to appreciate substantially in value in the next year. Say the stock's current price, S0, is $100, and a call option expiring in one year has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 to invest, you are considering three alternatives. a. Invest all $10,000 in the stock, buying 100 shares. b. Invest all $10,000 in 1,000 options (10 contracts). c. Buy 100 options (one contract) for $1,000, and invest the remaining $9,000 in a money market fund paying 4% annual interest. What is your rate of return for each alternative for the following four stock prices in one year? Summarize your results in the table and diagram below. a. All stocks (100 shares) b. All options (1,000 shares) c. Bills +100 options