Purchase Solution

Wal-Mart stock

Not what you're looking for?

Ask Custom Question

Suppose you think Wal-Mart stock is going to appreciate substantially in value in the next year. Say the stock's 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.
What is your rate of return for each alternative for four stock prices one year from now?
Summarize your results in a table that shows the rate of return on investment for all three alternatives.

Purchase this Solution
Solution Summary

This solution is comprised of a detailed explanation to answer what is the rate of return for each alternative for four stock prices one year from now and summarize the results in a table that shows the rate of return on investment for all three alternatives.

Solution Preview

Since there is no new stock price given, I assume a new stock price where you can take a look at the calculation.

Assume that Wal-Mart stock price one year from now is $150.

a. Invest all $10,000 in the stock, buying 100 shares.

1-year ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

View More Free Quizzes
Related BrainMass Solutions

  • Control Mechanisms Paper: Walmart

    Product Stock: A unique point of Wal-Mart is that all products are in stock at all times. This is possible due to the most intensive product replacement program.

  • Wal-Mart's strategies

    Further, Wal-Mart could reroute trucks to stores that are running out of product quicker and ensure no stock outs, which will improve customer satisfaction. The primary strategies that Wal-Mart uses are given.

  • Ethics and Compliance

    In case of Wal-Mart the net income applicable to common shares have gone up from $13.4 billion in 2009 to $16.4 billion in 2011. The stock markets have shown that over the period of last five years the stocks of Wal-Mart have increased in value (c).

  • Financial Analysis: Investing in Companies

    Wal-Mart will continue to grow in future. The stock price of Wal-Mart is likely to increase n future. Long term investors are likely to be attracted to Wal-Mart stock. There is relatively low volatility in the stock prices.

  • Estimate the price of another company's stock

    357131 Estimate the price of another company's stock 1. You have the following information on Target and Wal-Mart: Target: P-E (which is Price/EPS) = 14.87 Wal-Mart: EPS = 15.42 a. Using Target as a comparable, estimate Wal-Mart's price b.

  • 'Cost of equity' using Beta

    As per CAPM, Return on Stock= Risk free rate + Beta*(Market return-risk free return) For Wal-Mart the Return= 4.5%+ .23*(6.5%) =5.99% This means that the cost of equity of Wal-Mart is 5.99%.

  • determining current futures prices

    It has a credit rating of 4 as well as it has 'A++' rating for financial strength in both stock price stability and earnings predictability that is a good indicator of less amount of risk in the stock of Wal-Mart (Wal-Mart: Low Risk Stock at Current Price

  • Job Design and Scheduling for Wal-Mart

    Wal-Mart gains the benefit of knowing when the package should be available at the warehouse to ensure that there will be no stock-out.

  • Push or Pull strategy for labeled curling brush at Wal-Mart

    Wal-Mart might then stock several competitor brands (while if they had the exclusive deal that might only carry your brush), which will dilute the sales at Wal-Mart.

  • Safety Stock and Manufacturing Techniques for a Global Organization

    Merchants often tell Wal-Mart to increase their inventories. Professionals at Wal-Mart know how to calculate safety stock to attain desired service level, and identify when adding cost could be cost-prohibitive.

View More Related Solutions