Read the scenarios below and answer the questions that follow:

5.1 Company ABCs shares are currently trading at R30. After analysing Company ABCs shares, Investor A purchases a R35 December call at a premium of R3 per share. One call option contract is made up of 100 shares. On the other hand, after analysing Company ABCs shares, Investor B purchases a R22 December put at a premium of R4.50 per share. One put option contract is made up of 100 shares.

Note: show all calculations and round off your final answers to two decimal places.

5.1.1 Why would Investor A purchase the call option on Company ABCs shares? (1)

5.1.2 Why would Investor B purchase the put option on Company ABCs shares? (1)

5.1.3 What is the break-even price per share on the call option? (1)

5.1.4 What is the break-even price per share on the put option? (1)

5.1.5 Calculate the profit or loss on the call and put options if Company ABCs shares trade at R15 at expiration. (4)

5.1.6 Which investor will exercise the option if Company ABCs shares trade at R36 at expiration? (1)

5.2 Hedge Fund A has R120 000 000 assets under management (AUM) at the beginning of 2021. The annual management fee is 1.5%, charged at the beginning of the year. The performance fee is 20% of the funds performance more than the hurdle rate. The hurdle rate is set at 6%. By the end of 2021, the hedge fund achieved a return of 17% after management fees.

Note: show all calculations and round off your final answers to two decimal places.

5.2.1 Calculate the management fee for the hedge fund. (1)

5.2.2 Calculate the performance fee for the hedge fund. (1)

5.2.3 Suppose the high-water mark in 2020 is R129 500 000 and the hedge funds AUM at the end of 2021 is R130 000 000. What will the high-water mark be at the beginning of 2022, and why? (2