A hedge fund owns 1,000,000 shares in a company called Monitise. The current share price is 500 pence. The hedge fund is committed to another investment in 3 months and will need at least 4,500,000 but would like to have as much cash as possible in 3 months. The hedge fund is considering two alternative courses of action Strategy 1: To sell the holding in Monitise now and invest the proceeds in a money market fund. The fund offers a return of 8% p.a.. Strategy 2: To keep the stock, purchase a 3 month at the money put option and finance this by writing a call with an exercise price of 550 pence. The cost of the put option is exactly offset by the premium received from the call option. Suppose that in three months the share price has moved to the values shown in the table below. Assume no transaction costs or dividends are involved. Share Price in 3 Months: Monitise 450p 500p 550p 600p Required (a) Show the returns for the hedge fund from Strategy 1 for each of the possible share prices shown in the table above. Comment on your answer. (20 marks) (b) Show the returns for the hedge fund from Strategy 2 for each of the possible share prices shown in the table above. In your answer, also explain which options are exercised and which are not. (40 marks) (c) Explain the circumstances under which the hedge fund would prefer Strategy 1 to Strategy 2. (20 marks)