Question 5 (20 marks) You would like to trade on stock options with HSBC as the underlying asset and you visit the website of a reputable global bank. You find the following information about the option premium as follows: (a) You believe that HSBC stock price will go up in coming 3 months because global central banks will ease their monetary policies and you decide to buy the option with strike $50. What option you will buy? Explain. (4 marks) (b) Draw the profit diagram at expiration for option you have bought in part (a). (4 marks) (c) At expiration, HSBC stock price goes up to $60, what will you do? Explain. ( 2 marks) Calculate the profits you can make if you act according to (b). (2 marks) (d) If you think that HSBC stock price will move in narrow price range around $50 in coming 3 months, what will you do? Explain. ( 2 marks) Calculate the maximum profit you can make if your expectation is correct. (2 marks) (e) A 6-month call option on TZB with an exercise price of $65 is selling at $1.30. A 6-month put option on TZB with an exercise price of $65 is selling at $0.80. If the risk-free rate is 2% per year, calculate the TZB stock price. ( 4 marks)