1. You are evaluating a stock that is currently selling for R30 per share. Over the investment period you think that the stock price might get as low as R25 or as high as R40. There is a call option available on the stock with an exercise price of R35.

a. How many call options will you combine with the stock to construct the perfect hedge? Will you buy the calls or sell the calls (not more than 3 words)?

b. Calculate the value of one call option now.

2. The spot price of ExxonMobil is R100 with a dividend yield of 3% and the 206 days Treasury bill rate is 6% (continuous compounding). The initial margin required for Exxon mobile futures is at 10% of the transaction value. After 96 days the price decreases to R85, What will be the present value of profit/loss to the long position of the future contract.