1. a) The shares of From Russia With Love Co. (FRWL) currently trade at $50, and you believe that its stock price will go up soon. You have $50 in cash and you can borrow an additional $50 from a bank at an annual rate of 5%.

   Suppose that in one year you sell your shares at $60 each. How did your decision to take or not to take the loan affect the 1-year return on your portfolio? (5 marks)

2. b) You just purchased Stock A in the spot market at $38 and a put option at $1. The strike price of the put option is $35.

3. i) What is the maximum profit of your position?

4. ii) What is the maximum loss of your position?

5. iii) What is the breakeven price of your position?

[Note: Full mark would only be given if supporting calculation or explanations are provided.)