(c) Maggie is considering using put option to hedge the potential downside risk of the stock price of Zoom. The following Zoom put options are available in the market with the same expiration date on 31 December 2020: Put Option No. 1 No. 2 No. 3 Exercise Price US$450 US$475 US$500 Option price US$2 US$5 US$10 Maggie decides to buy Put Option No. 2 to hedge her entire position in Zoom. Calculate the profit of put options if the stock price of Zoom is US$460 on expiration date. (4 marks) K Page 3 of 10 Question Al (continued) (d) Arthur, Maggie's investment advisor, suggest short selling 400 shares of Zoom at current market price after 20% surge in stock price last week. The initial margin and maintenance margin is set at 50% and 30% respectively. (1) Construct the account balance sheet once the margin account is set up. (4 marks) (ii) Calculate the price level that Maggie get a margin call. (Ignore margin interest) (4 marks) (e) Identify and explain TWO advantages of using put options over short selling to make profit under expected drop in stock price of Zoom. (6 marks) - End of Section A - (c) Maggie is considering using put option to hedge the potential downside risk of the stock price of Zoom. The following Zoom put options are available in the market with the same expiration date on 31 December 2020: Put Option No. 1 No. 2 No. 3 Exercise Price US$450 US$475 US$500 Option price US$2 US$5 US$10 Maggie decides to buy Put Option No. 2 to hedge her entire position in Zoom. Calculate the profit of put options if the stock price of Zoom is US$460 on expiration date. (4 marks) K Page 3 of 10 Question Al (continued) (d) Arthur, Maggie's investment advisor, suggest short selling 400 shares of Zoom at current market price after 20% surge in stock price last week. The initial margin and maintenance margin is set at 50% and 30% respectively. (1) Construct the account balance sheet once the margin account is set up. (4 marks) (ii) Calculate the price level that Maggie get a margin call. (Ignore margin interest) (4 marks) (e) Identify and explain TWO advantages of using put options over short selling to make profit under expected drop in stock price of Zoom. (6 marks) - End of Section A