3. (c) Nabil Ahmad quite interested in purchase a European call option on Ali Baba industry,...

 

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3. (c) Nabil Ahmad quite interested in purchase a European call option on Ali Baba industry, with a strike price of RM35 and 2 years 9 months until expiration. Ali Baba's share is currently trading RM37 per share, and the variance is 65 percent per annum. Treasury-Bill's securities that mature in one year yield a continuously compounded interest rate of 9 percent per annum. (a) Calculate the price of option. (d) (b) lan is considering to invest RM75,000 in either Star share or Star call option. The Start call option expected to bullish in the next 3 months. The Star exercise price and premium are RM75 and RM1.50 respectively. As expected, the price of Star share is increase to RM80 within the next three months. (a) (9 marks) GMI Berhad is a rubber glove manufacturer who specialise in face masks, dental dams and other products. The demand of gloves and face masks have been increased due to pandemic in 2020 and the GMI share has shown a volatile trend in the market. Thus, Nabil Ahmad is interested to invest in GMI share where the current share price is RM29.90, and it expected to increase by 28 percent and decrease by 28.5 percent. The strike price is RM21 and risk-free rate is 9.5 percent. If the value of call price is RM16.50, calculate the years of maturity from this investment. Illustrate the appropriate strategy of option, calculate the intrinsic value and indicate the type of moneyness for lan. Identify whether lan should invest in option or not. Justify the reason. (8 marks) lan wealthy Aunt Minnie has asked him to manage her large share portfolio. Aunt Minnie owns 10,000 common shares of IBM. lan believes it is going to fall in price, but she won't let him sell it because her late husband told her never to let it go. Discuss how do lan protect Aunt Minnie from the impending price decline. Although Aunt Minnie doesn't want lan to sell any of the shares she owns, she would like lan to use options to generate a little extra income. Discuss how lan can assist Aunt Minnie on this matter. Justify the reason. 3. (c) Nabil Ahmad quite interested in purchase a European call option on Ali Baba industry, with a strike price of RM35 and 2 years 9 months until expiration. Ali Baba's share is currently trading RM37 per share, and the variance is 65 percent per annum. Treasury-Bill's securities that mature in one year yield a continuously compounded interest rate of 9 percent per annum. (a) Calculate the price of option. (d) (b) lan is considering to invest RM75,000 in either Star share or Star call option. The Start call option expected to bullish in the next 3 months. The Star exercise price and premium are RM75 and RM1.50 respectively. As expected, the price of Star share is increase to RM80 within the next three months. (a) (9 marks) GMI Berhad is a rubber glove manufacturer who specialise in face masks, dental dams and other products. The demand of gloves and face masks have been increased due to pandemic in 2020 and the GMI share has shown a volatile trend in the market. Thus, Nabil Ahmad is interested to invest in GMI share where the current share price is RM29.90, and it expected to increase by 28 percent and decrease by 28.5 percent. The strike price is RM21 and risk-free rate is 9.5 percent. If the value of call price is RM16.50, calculate the years of maturity from this investment. Illustrate the appropriate strategy of option, calculate the intrinsic value and indicate the type of moneyness for lan. Identify whether lan should invest in option or not. Justify the reason. (8 marks) lan wealthy Aunt Minnie has asked him to manage her large share portfolio. Aunt Minnie owns 10,000 common shares of IBM. lan believes it is going to fall in price, but she won't let him sell it because her late husband told her never to let it go. Discuss how do lan protect Aunt Minnie from the impending price decline. Although Aunt Minnie doesn't want lan to sell any of the shares she owns, she would like lan to use options to generate a little extra income. Discuss how lan can assist Aunt Minnie on this matter. Justify the reason.

Answer rating: 100% (QA)

a Nabil Ahmad should pay RM048 for the option Option price S0Nd1 XertNd2 d1 lnS0X r sigma22tsigma sqrtt d2 d1 sigma sqrtt S0 37 X 35 r 009 t 275 sigma 065 d1 ln3735 009 06522275065 sqrt275 d1 1064 d2 ... View the full answer