Question 4: 20 marks

(a) The FlyDubai has a beta of 0.92. The EIBOR rate (risk free rate) is 4% and the expected rate of return on Dubai Financial Market index is 10%. Your estimated/forecasted rate of return on FlyDubai is 11.2 %. Based on your estimated return and other information provided, what action will to take regarding investing in FlyDubai Stock (will you buy or sell this stock)? Explain your answer.

(8 marks)

2. Consider the following information on put and call options for Citigroup

Strike Price	Put Price	Call Price
$32.50	$2.85	$1.65

.

1. What would the net value of a protective put position be if the stock price at expiration is $40? (6 marks)
2. What would the net value of a covered call position be if the stock price at expiration is $40?

(6 marks)