Suppose your portfolio consists of one share of Goldman Sachs (GS) and a European put option on GS with a strike of $105 and a maturity of a year. At maturity, the value of your portfolio must be
A) Equal to or less than $105
B) Equal to $105
C) Equal to or greater than $105
D) None of the above

Question

Quizplus · Accepted Answer

The portfolio consists of a share of Goldman Sachs and a European put option with a strike price of $105. At maturity, if GS is above $105, the put option will expire worthless, but the share will be worth more than $105, making the portfolio worth more than $105. If GS is below $105, the put option will be exercised, allowing the owner to sell GS for $105, ensuring the portfolio is worth exactly $105. Therefore, the portfolio's value will be equal to or greater than $105.

Suppose Your Portfolio Consists of One Share of Goldman Sachs