An investor is holding many Commonwealths Bank Limited shares in an investment portfolio and wishes to protect the value of the investment. The commonwealth Bank Limited shares currently trade at $90.50. The investor buys a put option with an exercise price of $240.00 per share and a premium of $1.50 per share.

a) What is a put option and what is a call option? (2.5 marks)

b) Explain the premium and the exercise price. (2.5 marks)