Question 4

Question 4 (8 marks}: 3) Compare and contrast between hedging and speculation. (2 marks} '1) Assume an investor purchases a February call option on shares of the DBS with an exercise price of 230 and a February expiry date at a price of 10. Determine the prot and loss at the expiry date for the prices of 320 and 265. (2 marks} (1) January 520 and January 500 calls for ZOOM are traded at 10.50 and 18.50, respectively. Which one is more likely to end up in the money? Why? {2 marks} d} Determine the lower bound of the price (minimum price) for a six month call when the share price is 120, the calls exercise price is 100, and the interest rate for the six month period is 5 per cent. {2 marks}