IVVU mes, UNICUI VIILI STIUUIU ved VVUIU Uulumell. 1. You are considering two derivatives based on a particular stock. Both derivatives are based on 100 shares of stock and expire on August 31, 2019. One derivative is a stock future with a future price of $83. The other derivative is a put option with a strike price of $86 and a premium of $0.75. The current stock price is $93 and you expect that price to decrease by August 31. (4 points each) a. Suppose you own the stock and are hedging against the risk that the stock price does actually decrease. Which derivative would you use to hedge the risk? What position would you take in that derivative? Support your response. b. Suppose you do not own the stock and are a speculator. Which derivative would you use to speculate? What position would you take in that derivative? Support your response. 2. You take a long position in a European call option on a particular stock. Each option involves 100 shares of stock. The strike price in the option is $75. a. When will you choose to exercise this option? (3 points) b. Suppose the spot price of the stock is $80 at expiration and that you paid a premium of $3 for the option. Calculate your (a) payoff and (b) your profit or loss at expiration. (6 points) C. Suppose the spot price of the stock is $65 at expiration and that you paid a premium of $1 for the option. Calculate your (a) payoff and (b) your profit or loss at expiration. (6 points)