Heres the questions and solutions. (16-17)

I dont understand the solution for 17.

I want to know the computation of ending value of cd, ending value of call

please explain to me in detail

Targe amounts ttp lelession, l capital and businesses foresee a need of investment. Why would this development affecet real rates? Challenge Problems 16 and 17 are more difficult. You may need to review the defini- tions of call and put options in Chapter 2. Challenge 16. You are faced with the probability distribution of the HPR on the stock market index fund given in Spreadsheet 5.1 of the text. Suppose the price of a put option on a share of the index fund with exercise price of $110 and time to expiration of 1 year is $12. a. What is the probability distribution of the HPR on the put option? b. What is the probability distribution of the HPR on a portfolio consisting of one share of the index fund and a put option? c. In what sense does buying the put option constitute a purchase of insurance in this case? 17. Take as given the conditions described in the previous problem, and suppose the risk-free inter- est rate is 6% per year. You are contemplating investing $107.55 in a 1-year CD and simultane- ously buying a call option on the stock market index fund with an exercise price of S110 and expiration of 1 year. What is the probability distribution of your dollar return at the end of the year? Given $100,000 to invest, what is the expected risk premium in dollars of investing in equities versus risk-free T-bills (U.S. Treasury bills) based on the following table? PROBL 1. Probability Expected Return 50,000