ANSWER QUESTION 10, QUESTION 9 ANSWER IS HERE.

Question 9

a) To protect from decline in value she should use put option. She needs long position to have a right to sell.

b)

Price	Long Put @ 45	Pay off	Net Premium	Shares	Net Value
25	Exercise	2000	-350	2500	4150
35	Exercise	1000	-350	3500	4150
45	Lapse	0	-350	4500	4150
55	Lapse	0	-350	5500	5150
65	Lapse	0	-350	6500	6150
75	Lapse	0	-350	7500	7150
85	Lapse	0	-350	8500	8150
95	Lapse	0	-350	9500	9150
105	Lapse	0	-350	10500	10150

9) Suppose that an investor holds 100 shares of Black Sox, Inc. stock , currently valued at $45/share. She is concerned that over the next 3 months the value of her holding might decline. She wants to use a put option hedging strategy to protect her portfolio of Sox stocks? a) (5 pts) Should she take a long position or short position in the put option? Why? b) (10 pts) A put option with a strike price of $45 costs $3.50. Graphically describe her net profit of her 100 shares and put options from various spot prices of her Sox stock that ranges from $25 to $100 per share at the time of maturity in 3 months. 10) Suppose instead, the investor in the problem above wants to use a call option hedging strategy to protect her portfolio of Sox stocks? a) (5 pts) Should she take a long position or short position in the call option? Why? b) (10 pts) A call option with a strike price of $45 costs $5.25. Graphically describe her net profit of her 100 shares and call options from various spot prices of her Sox stock that ranges from $25 to $100 per share at the time of maturity in 3 months