(b) The shares of a company are currently trading at ksh 3.5 per share,A European call option exists on the shares with an exercise price of 3.3 ksh per share with 3 months to maturity, The risk-free rate is 8%, the variance of rate of return on the shares is 12%.

Determine the value of call option using Black-Scholes option pricing model 

(c) Propose four investment constraints considered by a portfolio manager while developing an investment policy statement (IPS) for a client.

(d) Wakabe is a portfolio manager, on an annual basis he has a 5% portfolio return with a standard deviation of 10% and a tracking error of 5%. Assume that the bencharmark return is 2.5% per annum and a risk-free rate is 0.1 % per annum

Required:

(i) The sharpe ratio of the portfolio manager

(ii) The information ratio of the portfolio manager

e)Discuss four factors that could be used in predicting the beta of a company 

f)Discuss various risks associated with margin accounts

Answer rating: 100% (QA)

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