Suppose you think Wal-Mart stock is going to appreciate substantially in value in the next year. Say the stocks current price, S₀, is $100, and the 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% interest annually.

Required:

First find the ending period portfolio value for each investment and potential terminal stock price. What is your rate of return for each alternative for four stock prices one year from now? (Leave no cells blank - be certain to enter "0" wherever required. Negative amount should be indicated by a minus sign. Round your answer to 1 decimal place. Omit the "$" and "%" signs in your response.)

RATE OF RETURN ON INVESTMENT

Portfolio Value in dollar amount at end of period

	Portfolio Value One Year From Now
Stock price:	$80		$100		$110		$120
All stocks (100 shares)
All options (1,000 shares)
Bills + 100 options

Holding period return, based on a $10,000 investment:

	Percentage Return One year From Now
Stock price:	$80		$100		$110		$120
All stocks (100 shares)		%		%		%		%
All options (1,000 shares)		%		%		%		%
Bills + 100 options		%		%		%		%