Question 8 chap 14 (10 marks) Bill Lee just purchased 10,000 shares of FIN223 Ltd at $5 .3 per share, and he has decided to writecovered calls against these shares. Accordingly, he sells 100 FIN223 calls at their current marketprice of $0.68 per share; the calls have three months to expiration and carry a strike price of $5.8.The shares pay a quarterly dividend of 6 cents a share. a) Determine the total pro?t and holding period return Bill will generate if the share rises to $5.8 ashare by the expiration date on the calls. (3 marks) b) What happens to Bills pro?t (and rate of return) if the price of the share rises to more than $5.8 ashare? Explain. (2 marks) 0) Does this covered call position offer any protection against a drop in the price of the share? Towhich extend will the FIN223 share price drop to make Bill a break-even? Explain a covered calland the potential pro?t and/or loss associated with a covered call. (5 marks)
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