a) Amirul is considering buying 300 shares of KG Inc at RM50 per share. Amirul heard the news that there the stock market will enter a slump and thus he expects the price of KG to decrease to RM45 per share. As an alternative Amirul is considering to purchase an option contract for 300 shares of KG at a striking price of RM52. The 90-day option will cost RM300. Ignore any brokerage fees or dividends.

i. Advise what kind of option should Amirul purchased? (1m)

ii. What will Amiruls profit be on the option transaction if the underlying price does decrease to RM45? (2m)

iii. Identify the profit or loss if the market price increase to RM55. (2m)