Please remember,

- Provide proper working for each problem.

- Use proper numbering for each solution according to the questions.

- Provide formulas where its necessary. If possible mark it down.

- Handwritten is preferred.

Question 11

1. If Coles' shares are now selling at $16.00 each, why could a call option on those shares with an exercise price of $18.00 and expiring in six months, sell at a positive price? Explain, with the aid of a hypothetical example.

2. What is the after-tax percentage return to an investor who buys shares in BHP Ltd a year ago for $35.00, receives a dividend of $1.75 yesterday and sells the shares for $38.85 today? The tax rate on both dividends and capital gains is 30%.

3. What is the difference between a call option and a long position on a futures contract, both on the same company's shares?

4. Explain, with supporting reasons, which of the two strategies in d. above you would recommend to a risk averse Investor seeking to buy shares in a company where the share price history has been slow but steady growth and little volatility?

e. Explain, with supporting reasons, which of the two strategies in d. above you would recommend to a risk averse Investor seeking to buy shares in a company where the share price history has been slow but steady growth and little volatility?