(designing option contracts) Suppose you live in a state that has a usury law prohibiting interest charges above 9%. Current market interest rates are 18% for a project. You are a wealthy individual who wants to offer a 1 year construction loan of 100,000 to Storage Partners to build a miniwarehouse.

You want to receive a fair market return of 18%. Design a portfolio of contracts that will promise you a 118,000 payoff in 1 year.

Multiple choices are:

at expiration, asset value plus put value equals call value plus strike price

if you "buy" (from Storage Partners, for $100,000) the warehouse (that will be built) along with a 1-year put on it that has a strike price of $118,000 you'll have a minimum of $118,000 in value at the end of the year

if you write a 1-year call option to Storage partners with a strike price of $118,000, they will exercise their option if the warehouse is worth more than $118,000 at the end of the year

if the warehouse is worth less than $118,000 at the end of the year, you will exercise your put option

A and B

A and C

A and D

B and C

B and D

C and D

all but A

all but B

all but C

all but D