Question 5 (a.) State three different types of traders who would trade futures contracts. Explain how they would use those derivatives for their activities. [30 marks] (b.) Calculate the Black Scholes call and put premium for the following option. Current stock price is 25 , strike price is 26 , interest rates are 1%, time to expiry is 9 month and you believe the volatility of the underlying asset is 22% (as measured by the standard deviation). What would you conclude if the actual call premium is 2.42 ? [35 marks] (c.) Suppose you are running a long short hedge fund. You invest in over and underpriced stocks, but you are worried about general stock market movements. Explain how you could use stock index futures to deal with general stock market movements. [35 marks] The Black -Scholes model is: C=SN(d1)KerTN(d2)d1=[ln(S/K)+(r+2/2)T]/[sqrt(T)]d2=d1sqrt(T) [Total: 100 marks]