Question: Question #4: Using Options and Hedging Risk [12 Points] Suppose that you think that Goldman Sachs' stock is going to appreciate in value in the
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Question #4: Using Options and Hedging Risk [12 Points] Suppose that you think that Goldman Sachs' stock is going to appreciate in value in the next year. The stock is currently trading at $100 (So = $100). A call option that expires in one year has a strike price of $100 (X = $100) and is selling at a premium of $10. Suppose that you have $100,000 to invest and are considering three options: Option #1: Invest all $100,000 in Goldman Sachs' stock, buying 1000 shares. Option #2: Invest all $100,000 in Goldman Sachs' call option contracts (100 contracts). Option #3: Buy 10 contracts for $10,000 and invest the remaining $90,000 in Treasury bills that pay a risk-free rate of 2.4% annually, What would be your rate of return for each option given 4 possible stock prices one year from today? Use the table to summarize your results. YOU MUST SHOW YOUR WORK. Price of Goldman Sachs Stock One Year From Toda
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