3. Company A offers a rights issue of 1:2 (1 Rights for every 2 Shares) at $9. a. According to Black Scholes Options Pricing Model, what should the fair value of the Rights of Stock A on the Ex-Date if Stock A is trading at $9.65? The rights would be trading for 14 days, interest rate is 5% p.a. The standard deviation of Stock A is 10% p.a. Stock A is not offering any dividend in this period. bi If you hold 20,000 shares of Stock A, and receive 10,000 Right-A on the last day of trading for Right-A, what would you do if Stock Ais trading at $10.10 and Right-A is trading at $0.65? (The exercise price is $9.00). blf you hold 20,000 shares of Stock A, and receive 10,000 Right-A on the last day of trading for Right-A, what would you do if Stock A is trading at $9.65 and Right-A is trading at $1.10? (The exercise price is $9.00). 4. A bank has sold for $300,000 a European call option on 100,000 shares of a non-dividend paying stock So = 149, K = 50, r = 5%, s = 20%, T = 20 weeks, m = 13% What is the Black-Scholes-Merton value of the option? a. If the delta is 0.6, what should the bank do to hedge its position? bi. What happens to the delta and the number of shares (purchased/sold) when the share price rises to $52? b. What happens to the delta and the number of share (purchased/sold) when the share price falls to $46? 5. A. jf KLCI is at 1628.76, FKLI Dec is trading at 1612, there are 17 days to maturity, assuming that the dividend to be paid is 0.4%, interest rate is 4.22%, what is the arbitrage opportunity? b. The quotes forOKLI Dec15 1630 are as follows: Call Bid 16.0 Ask 19.0 Put Bid 23.0 Ask 33.0 Is there any arbitrage opportunity? 3. Company A offers a rights issue of 1:2 (1 Rights for every 2 Shares) at $9. a. According to Black Scholes Options Pricing Model, what should the fair value of the Rights of Stock A on the Ex-Date if Stock A is trading at $9.65? The rights would be trading for 14 days, interest rate is 5% p.a. The standard deviation of Stock A is 10% p.a. Stock A is not offering any dividend in this period. bi If you hold 20,000 shares of Stock A, and receive 10,000 Right-A on the last day of trading for Right-A, what would you do if Stock Ais trading at $10.10 and Right-A is trading at $0.65? (The exercise price is $9.00). blf you hold 20,000 shares of Stock A, and receive 10,000 Right-A on the last day of trading for Right-A, what would you do if Stock A is trading at $9.65 and Right-A is trading at $1.10? (The exercise price is $9.00). 4. A bank has sold for $300,000 a European call option on 100,000 shares of a non-dividend paying stock So = 149, K = 50, r = 5%, s = 20%, T = 20 weeks, m = 13% What is the Black-Scholes-Merton value of the option? a. If the delta is 0.6, what should the bank do to hedge its position? bi. What happens to the delta and the number of shares (purchased/sold) when the share price rises to $52? b. What happens to the delta and the number of share (purchased/sold) when the share price falls to $46? 5. A. jf KLCI is at 1628.76, FKLI Dec is trading at 1612, there are 17 days to maturity, assuming that the dividend to be paid is 0.4%, interest rate is 4.22%, what is the arbitrage opportunity? b. The quotes forOKLI Dec15 1630 are as follows: Call Bid 16.0 Ask 19.0 Put Bid 23.0 Ask 33.0 Is there any arbitrage opportunity
