The current share price of Rainy Berhad is RM40. The exercise price of the option is RM45 in 6 months' time. The additional information is the risk-free rate of interest is 10% per annum; meanwhile the standard deviation of return on the share is 60%.

From the above information, you are required to answer the following questions.

Calculate the value of the call option. Calculate the value of a put option.

(4 Marks) (2 Marks)

c. Rainy Berhad owns 400,000 shares. Devise a delta hedge to protect against changes in the share price. (2 Marks)

d. If Rainy Berhad have already 500,000 written call options, devise a delta hedge to protect against changes in the share price. (2 Marks)