question 4

Question 4 (8 marks): a) Compare and contrast between hedging and speculation. (2 marks) b) Assume an investor purchases a February call option on shares of the DBS with an exercise price of 280 and a February expiry date at a price of 10. Determine the profit and loss at the expiry date for the prices of 320 and 265. (2 marks) c) 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 call's exercise price is 100, and the interest rate for the six month period is 5 per cent. (2 marks)