Required: a)Calculate the price of a call and a put option based on the Black-Scholes option pricing model. b) Steven, an investor who owns 500,000 shares of ABC Berhad, and is expecting the upcoming general election would create greater volatility to the share price of ABC Berhad. Advise Steven on how to protect the value of his shareholding in ABC Berhad by using the option. c)Explain TWO (2) differences of hedging using options and futures with appropriate examples. d)Explain sector rotation with an appropriate example and discuss how to identify the prospects of an industry. e)Explain the term ''private equity" and discuss TWO (2) reasons why a firm needs private equity.
Required: a)Calculate the price of a call and a put option based on the Black-Scholes option pricing model. b) Steven, an investor who owns 500,000 shares of ABC Berhad, and is expecting the upcoming general election would create greater volatility to the share price of ABC Berhad. Advise Steven on how to protect the value of his shareholding in ABC Berhad by using the option. c)Explain TWO (2) differences of hedging using options and futures with appropriate examples. d)Explain sector rotation with an appropriate example and discuss how to identify the prospects of an industry. e)Explain the term ''private equity" and discuss TWO (2) reasons why a firm needs private equity.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Required:
a)Calculate the price of a call and a put option based on the Black-Scholes option pricing model.
b) Steven, an investor who owns 500,000 shares of ABC Berhad, and is expecting the upcoming general election would create greater volatility to the share price of ABC Berhad. Advise Steven on how to protect the value of his shareholding in ABC Berhad by using the option.
c)Explain TWO (2) differences of hedging using options and futures with appropriate examples.
d)Explain sector rotation with an appropriate example and discuss how to identify the prospects of an industry.
e)Explain the term ''private equity" and discuss TWO (2) reasons why a firm needs private equity.
Transcribed Image Text:АВС Вerhad:
Current stock price
: RM3.20
: 12%
Standard deviation
Call option specifications:
Exercise price
Time to expiration
: RM3.10
: 3 months
: 100 shares
Contract size
Interest rate
: 3.5%
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