QUESTION 1 (20 MARKS) -CLO 1 a) Amirul is considering buying 300 shares of KG Inc at RM50 per share. Amirul heard the news that there the stock market will enter a slump and thus he expects the price of KG to decrease to RM45 per share. As an alternative Amirul is considering to purchase an option contract for 300 shares of KG at a striking price of RM52. The 90-day option will cost RM300. Ignore any brokerage fees or dividends. i. Advise what kind of option should Amirul purchased? (1m) ii. What will Amirul's profit be on the option transaction if the underlying price does decrease to RM45? (2m) iii. Identify the profit or loss if the market price increase to RM55. (2m) b) Identify whether these options are ITM, OTM or ATM (2m) ITM/OTM/ATM Type of option Call Put Market price RM8.50 RM12.00 Exercise price RM9.00 RM10.00 c) Below is the information about call and put options available on Energy Limited's shares. A Call option with exercise price of RM 7.00 and the premium is RM 0.80 A Put option with exercise price of RM 8.00 and the premium is RM 0.60 Based on the information above, you are required to: i. Create a short strangle from the call and put options available and then draw its pay- off diagram. (4m) ii. Determine the profit or loss at the following level of share prices: RM5.00, RM 5.80, RM 8.00, RM 8.20, RM 9.00, RM 10.00.(3m) d) Assume the following two 30-day calls for CELL Bhd are available: Long RM8.50 Call @ 0.25 Short RM9.50 Call @0.10 a. Name the strategy for the above combination. (1m) b. Identify the breakeven price, maximum profit and the maximum loss. (3m) c. Draw the payoff profile for the above strategy (2m)