Question: a using the following data for beta ltd calculate the...
a. Using the following data for Beta Ltd., calculate the value of a call option and a put option
using Black-Scholes formula:
Current share price =$170
Exercise price = $155
Interest rate per annum = 6%
Dividend yield per annum = 2%
Time to expiration = 6 months
Standard deviation = 0.30 per annum.
b. Assume you have purchased 50,000 equity shares of a listed company in Australia and want to
sell these shares after 6 months to buy a house in Sydney. A call option and a put option on these
shares are currently selling at $3 and $2, respectively. The exercise prices of the call and put
options are $110 and $90, respectively. You intend to use either a protective put, a covered call, or
a collar to protect the value of your portfolio. Calculate the value of your portfolio after 6 months
for the following three market prices: $120, $100 and $80. Out of the above three strategies,
which one is the best strategy? Justify your answer based on the calculations you have performed.
c. Using the data in a., calculate the value of the put option using the put-call parity relationship.
If the current market value of the put option $5, explain the action you would take.
d. Using your calculations for part a. find out the values of hedge ratios for the call and put
option, respectively? Interpret the values of these hedge ratios.
e. Using your calculations for part a. calculate the elasticity of the call option and interpret its
f. Suppose you consider two portfolios. One holding 1000 calls and 300 shares of Beta company
and the other holding 900 shares of Beta company. Using appropriate calculations explain which
portfolio has greater dollar exposer Beta’s price movements.