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Due to the impact of COVID-19 pandemic, the stock price of Goodman Bhd. has fallen from RM4 to RM2. In the latest companys announcement, the management team announced that they will tender for a highway construction project worth RM10 billion. The management has confidence that the share price would at least double if they could secure the project. Your friend, Jennifer, decided to take the opportunity to buy 1,000 call option contracts of Goodman Bhd. at RM0.50 per share and she would like to seek for your advice on whether she is buying those call option contracts at a fair price.

The following information is given: Exercise price : RM2 Stock price : RM2.5 Time to maturity : 180 days Treasury bill rate : 3.5% Volatility : 30% Contract size : 100 shares Call option price : RM0.50 Put option price : RM0.40

Required: (a) Using the Black-Scholes Option Pricing Model, determine whether the current call option of Goodman Bhd. is traded at fair value. (10 marks) (b) Compute the profit/loss on the option if Goodman Bhd.s stock price rises to RM4.50. (3 marks) (c) Compute the profit/loss on the option if Goodman Bhd.s stock price falls to RM1.50. (3 marks) (d) Based on the above situation, advise Jennifer on the best strategy to trade the option with an appropriate payoff. (9 marks)

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