i)Calculate the price of a call and a put option based on the Black-Scholes option pricing ii)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 Advise Steven on how to protect the value of his shareholding in ABC Berhad by using the option.

i)Calculate the price of a call and a put option based on the Black-Scholes option pricing ii)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 Advise Steven on how to protect the value of his shareholding in ABC Berhad by using the option.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 4P: Put–Call Parity The current price of a stock is $33, and the annual risk-free rate is 6%. A call...

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Question 2

Required:

i)Calculate the price of a call and a put option based on the Black-Scholes option pricing

ii)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

Advise Steven on how to protect the value of his shareholding in ABC Berhad by using the option.

ABC Berhad:
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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