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Today is May 4th 2022. A Put option on Alibaba Group Holding Ltd (9988) has a maturity date of 29th Jun 2022, the exercise price is HKD 95, the Put option is trading on the Exchange at HKD 9.11. The Spot price of Alibaba is HKD 96.55 and the stock dont pay any dividend.

a) Is the Put option In-the-money or Out-of-the-money? (1 marks)

Select one:

a.Out of the money

b.In the money

b) if you are to buy this Put option, what is your maximum loss . (1 marks)

c) What is the spot price where you can break even. (1 marks)

d) Using Put-Call parity theory, what should be the price of the Call option for the same maturity and same exercise price? HIBOR for 2 months is 1.8% p.a. (3 marks)

e) If the Call option on Alibaba with maturity date 29th Jun, exercise price HKD 95 is trading on Exchange at HKD 10.5, assuming there is no transaction cost, is there an arbitrage opportunity? select the related transactions to capture the arbitrage (4 marks)

Select one or more:

a.Buy Ailibaba share @ HKD 96.55

b.Buy the Ailibaba 29th June 2022, HKD 95 Put option

c.Borrow a loan that for HKD 95 on 29th June 2022 @ 1.8% p.a.

d.Make a deposit that repay HKD 95 on 29th June 2022 @ 1.8% p.a.

e.Sell the Ailibaba 29th June 2022, HKD 95 Put option

f.Sell the Ailibaba 29th June 2022, HKD 95 call option

g.Sell Ailibaba share @ HKD 96.55

h.Buy the Ailibaba 29th June 2022, HKD 95 call option

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