Read the following article of Hong Kong's New World Development takes advantage of Hangzhou land price curbs, wins plot for 9.8 billion yuan. Hong Kong's New World Development takes advantage of Hangzhou land price curbs, wins plot for 9.8 billion yuan Hong Kong property company New World Development took advantage of a newly introduced price cap to win a commercial-residential plot of land in downtown Hangzhou for 9.8 billion yuan (US$1.4 billion), a shade higher than the starting bid of 9.6 billion yuan, it said on Tuesday. The deal represents New World's first foray into Hangzhou. The 93,364 square metre plot, the latest among nine sites the Hangzhou government is offering during a two-day auction, was also the first to be sold under the newly introduced price cap. The city of Hangzhou in China's eastern Zhejiang province is selling land for as little as only 4 per cent above starting bids, as it works to keep prices down and cool its housing market. Only by preventing the price of land from going up can home prices be stabilised, something the central government has highlighted from time to time, said Yan Yuejin, research director at Shanghai-based property services company E-House China R&D Institute. No single city would like to stand out in land sales under such circumstances, as this might attract criticism from the central government. Hangzhou is not an exception. Hangzhou, the hometown of South China Morning Post parent Alibaba Group Holding, will host the 2022 Asian Games. Answer the following questions. (a) Assume New World Development's share is currently trading for $62 per share. A call option with an exercise price of $60 sells for $4.10 and expires in three months. If the risk-free rate of interest is 2.6% per year, compounded continuously. Compute the price of a put option with the same exercise price. (9 marks) (b) Explain how a profit can be achieved by using (i) call options only and (ii) put options assuming that the share price of New World Development will fall. (8 marks) (c) Derivatives are useful, one student commented. Discuss the above statement when derivatives are applied in business practice. (8 marks)