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5 . Suppose a spot price of a market index is $1000. After 6 months the market index is priced at 1020. The annual risk-free

5. Suppose a spot price of a market index is $1000. After 6 months the market index is priced at 1020. The annual risk-free rate is 5%. The premium on the short put, with exercise price of 1050 is $10.

a. What is the profit at expiration for a short put? [4]

b. What is the intrinsic value of the short put in (i) above? [2]

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