a) Regina Rokiah is bearish on the market and she has established the following strategies on the DRB-Hicom Berhad's stock: Strategy 1: Wrote two 3-month call option contracts with a premium of RM0.06 and an exercise price of RM1.35 per share,and combined with,

Strategy 2: Purchased four 3-month put option contracts with a premium of RM0.05 and an exercise price of RM1.30 per share. The current spot price of DRB-Hicom is RM1.40 per share. Assume 1 contract is equal to 1,000 shares and ignore taxes and transaction costs.

Determine Regina's profit or loss if:

i) the price of DRB-Hicom rises to RM1.41 per share after 3 months. (2 marks)

ii) the price of DRB-Hicom stays at RM1.40 per share after 3 months. (2 marks) iii) the price of DRB-Hicom falls to RM1.36 per share after 3 months. (2 marks) iv) the price of DRB-Hicom falls to RM1.26 per share after 3 months. (2 marks) v) the price of DRB-Hicom falls to RM1.24 per share after 3 months. (2 marks)

b) Top Glove Corporation Berhad current stock price is at RM1.59. The information below show the strike price and the value of the premium for call and put at the different contract month.

Ringit (RM)	Call (RM)			Put (RM)
strike price	July	August	September	July	August	September
1.55	0.09	0.07	0.05	0.11	0.10	0.08
1.62	0.10	0.06	0.04	0.08	0.05	0.03

i) Compute the intrinsic value of the August 1.55 call. (1 mark)

ii) Compute the intrinsic value of the July 1.62 call. (1 mark)

iii) Compute the intrinsic value of the September 1.62 put. (1 mark)

iv) Compute the time value of the September 1.55 call. (1 mark)

v) Compute the time value of the August 1.62 put. (1 mark)

vi) Compute the time value of the July 1.55 call. (1 mark)

c) Explain why the value of a call option increases as the underlying asset's value increases but the opposite is true for a put option on the same asset. Justify what does this imply about the choice of option to hedge against rising or falling values of the underlying asset. (4 marks)