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 (S0 = $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 Today 288 . Option #1 Option #2 Option #3 Question #5: Option Strategies [12 Points] Tracy just purchased 1300 shares of Heartland Express , Inc. (HTLD )stock at $16.93 ,and she has decided to write calls against these stocks . Accordingly, she sells 13 HTLD call option contracts for $0.60 each. The expiration date on the calls is 6 months and they carry a strike price of $24.50 . (a) What is the option strategy that Tracy has decided to employ? [2 Points ] (b) What happens to Tracy's total profit if the price of the stock falls to $13 a share? [4 Points] (c) What happens to Tracy's total profit if the price of the stock rises to $30 a share? [4 Points] (d) What is the maximum total profit that Tracy can achieve with this stratey ? [2 Points ] Question #6: Option Strategies [15 Points] Suppose Timothy purchases 400 shares of Adobe Inc. stock (ADBE) for $570.53 and at the same time he also buys 4 put options that has a strike price of $530. The put option is currently selling for $5.58 . (a) What is the option strategy that Timothy has decided to employ? What would be the reason Timothy would want to employ this strategy? [2 Points] (b) What is Timothy's total profit (or loss) from the option strategy if the price of the ADBE stock is (i) $493 in 12 months ?W (ii) $540 in 12 months? [2 Points] (iii) $648 in 12 months ? [2 Points ]