Mutinta, a speculator has been trading in the derivatives markets and now wishes to take some position using share options. He has obtained information about the shares of DONGO Plc, a Stock Exchange listed company and this information is as follows: Number of issued ordinary shares 12,000,000 Nominal value per share $1.00 Current share price $5.45 There is a possibility that in the next three months, the share price of DONGO Plc may rise or fall. The probability that either of these would occur has not been determined. Analysists have therefore taken advantage of this situation to provide predictions for their clients to use when making investment decisions. Mutinta has obtained the following possible share prices of DONGO Plc which are expected in three months time: $3.45; $3.90; $4.67; $5.89; $6.86; $7.12. Mutinta wishes to write a three months put option on 15,000 ordinary shares of DONGO Plc with an exercise price of $4.95 and also to buy a three months put option on 15,000 ordinary shares of DONGO Plc with an exercise price of $6.15. The speculator has several other transactions in derivatives shares of different stock exchange listed companies. The annualized yield on Treasury bills is 4% and the standard deviation on returns on these shares is 25%. The last dividend was paid six months ago and the next dividend will be paid in nine six months time from now. Therefore, no dividends are expected to be paid by DONGO Plc before the expiry dates of the options in which Mutinta is engaged. Required: (b) Calculate the following values: (i) The premium that Mutinta should charge for the short put option. [10 Marks] (ii) The premium that Mutinta should pay for the long put option. [10 Marks]