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Question 4 (25 marks) You are currently heavily invested in MultiChoice Group Ltd.. You are of the belief that MultiChoice Group Ltd. is not expected
Question 4 (25 marks) You are currently heavily invested in MultiChoice Group Ltd.. You are of the belief that MultiChoice Group Ltd. is not expected to increase dramatically over the next 4 months and you are interested in using a covered call strategy to take advantage of the limited upside and a achieve an increase your overall portfolios return. Use the information in the table below as well as the tables at the end of the paper to answer (A) and (B). 8 Share Price Today R2981.88 Exercise Price R3250 Risk Free Rate 7% Dividend Yield 2% Variance 0.11 Months until Expiration 5 A) Using the the information provided, calculate the value of the out-the-money call option using the Black-Scholes option pricing model. (18 Marks) B) Calculate the payoff of the covered call strategy if the share price ends up being R3429.16 (7 marks)
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