Questions Main Street Plc. is a stock which is responsible for the project management and processes of the major carriageway/road projects in the United Kingdom. It has previously maintained a dividend of around 0.10 per share, for the last 5 years at least. The firm has received a contract to expand its services to the French government in selected areas, in which case, depending on its management of these projects the firm's profitability is expected to increase in future periods. MS Plc. current share price is 7.30. The outcomes of the contracts and the managements ability to manage current assets, means that there is a standard expectation of 1-year volatility in share price of 24%. The risk-free rate of 2% An investor who has been observing the share price and profitability of MS Ple feels without definite knowledge that the profitability of MS Plc. will increase in future, and therefore would like to own the asset in future, has been considering their investment via options Required: a) Calculate the price/premium of a CALL option with a STRIKE of E7.85 for 1 year in the future. All stages of the calculation should be rounded to 4 decimal pieces) (8 Marks) b) Calculate the price/premium of a PUT option with the same terms. (3 Marks) c) Given the intormation you have been provided in the scenario which aption should the investor BUY, fully explaining your rationale. (5 Marks) d) Evaluate the situation with respect to the dividend's payments. (Explain the impacts of the dividends on the binomial model - 3 marks How would this affect the preizkunt which should be paid 2 marks) (5 Marks) e) Would this transaction be classified as either Hedging or speculation? Explain your rationale, (2 Marks) (Total: 25 Marks) Questions Main Street Plc. is a stock which is responsible for the project management and processes of the major carriageway/road projects in the United Kingdom. It has previously maintained a dividend of around 0.10 per share, for the last 5 years at least. The firm has received a contract to expand its services to the French government in selected areas, in which case, depending on its management of these projects the firm's profitability is expected to increase in future periods. MS Plc. current share price is 7.30. The outcomes of the contracts and the managements ability to manage current assets, means that there is a standard expectation of 1-year volatility in share price of 24%. The risk-free rate of 2% An investor who has been observing the share price and profitability of MS Ple feels without definite knowledge that the profitability of MS Plc. will increase in future, and therefore would like to own the asset in future, has been considering their investment via options Required: a) Calculate the price/premium of a CALL option with a STRIKE of E7.85 for 1 year in the future. All stages of the calculation should be rounded to 4 decimal pieces) (8 Marks) b) Calculate the price/premium of a PUT option with the same terms. (3 Marks) c) Given the intormation you have been provided in the scenario which aption should the investor BUY, fully explaining your rationale. (5 Marks) d) Evaluate the situation with respect to the dividend's payments. (Explain the impacts of the dividends on the binomial model - 3 marks How would this affect the preizkunt which should be paid 2 marks) (5 Marks) e) Would this transaction be classified as either Hedging or speculation? Explain your rationale, (2 Marks) (Total: 25 Marks)
