Item

11

10

points

Time Remaining 4 hours 6 minutes 15 seconds

04:06:15

eBook

Check my work

Check My Work button is now enabled

Item11

Item 11 10 points

Time Remaining 4 hours 6 minutes 15 seconds

04:06:15

Problem 21-32

You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $109 at year-end. XYZ currently sells for $109. Over the next year, the stock price will increase by 7% or decrease by 7%. The T-bill rate is 4%. Unfortunately, no put options are traded on XYZ Co.

a.Suppose the desired put option were traded. How much would it cost to purchase?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b.What would have been the cost of the protective put portfolio?(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

c.What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put withX= 109? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Next

Visit question map

Question11of19Total

11of19

Prev