Suppose you think IBM stock is going to appreciate substantially in value in the next year. Say the stock's current price is $100, and a call option expiring in one year has an exercise price of $100 and is selling for $10. Assume you have $10,000 to invest and you are considering the three alternative listed below:

1. 1. Invest all $10,000 in the stock, buying 100 shares.
   2. Invest all $10,000 in 1,000 options (10 contracts).
   3. Buy 100 options (one contract) for $1,000 and invest the remaining $9,000 in a money market fund paying 4% annual interest.

What would your rate of return be for each investment alternative if the stock price were to then change over the year as described below? To calculate the return you need to calculate the value of each alternative at the end of the year and then subtract off the original $10,000 investment and then divide by $10,000. i.e.,

• If you had invested all $10,000 in the stock (alternative A above) and the stock price were to change to $80 then your return would be... [ Select ] ["-20%", "-10%", "-2%", "4%", "0%"]
• If you had invested all $10,000 in the stock (alternative A above) and the stock price were to stay at $100 then your return would be... [ Select ] ["0%", "-20%", "-10%", "4%"]
• If you had invested all $10,000 in options (alternative B above) and the stock price were to change to $80 then your return would be... [ Select ] ["-100%", "0%", "-20%", "-10%"]
• If you had invested all $10,000 in options (alternative B above) and the stock price were to change to $120 then your return would be... [ Select ] ["100%", "20%", "-20%", "0%"]
• If you had invested $1,000 in options and the rest in the money market account (alternative C above) and the stock price were to change to $80 then your return would be... [ Select ] ["-6.4%", "-20%", "0%", "-100%", "4%"]