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Caltex Australia Limited pays a constant dividend of $0.60 cents per share. A fund manager is considering purchasing the shares as part of an investment portfolio. The fund manager requires a return of 15 per cent on the investment. Calculate the price that the funds manager would be willing to pay for the shares. b. A superannuateon fund is holding a large number of National Bank Limited shares in an investment portfolio and wishes to protect the value of the investment. The National Bank Limited shares currently trade at $24.49. The superannuateon fund buys a put option with an exercise price of $24.00 per share and a premium of $0.95 per share
Required:
Question i) What is a put option?
Question ii) By entering into this option strategy, explain whether the superannuateon fund will exercise the option if the spot price is above or below the exercise price. .
Question iii) Calculate the breakeven point of the option, and calculate the profit/loss to the fund manager if at expiry of the option the share price is $22.00 and $30 respectively
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