Reference no: EM132643537

Suppose you think Walmart stock is going to appreciate substantially in value in the next 6 months. Say the stock's current price, is $100, and the call option expiring in 6 months has an exercise price, X, of $100 and is selling at a price, C, of $10. With $10,000 to invest, consider 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 $9000 in a money market fund paying 4% in interest over 6 months (8% per year).

What is the dollar value and rate of return for each alternative for four stock prices one year from now?