Maverick Manufacturing Ltd$.$ must purchase gold in three months for use in its operations. Maverick's management has estimated that

if the price of gold were to rise above $$1,625$ per ounce, the firm would go bankrupt. The current price of gold is $$1,545$ per ounce.

The firm's chief financial officer believes that the price of gold will either rise to $$1,795$ per ounce or fall to $$1,435$ per ounce over the

next three months. Management wishes to eliminate any risk of the firm going bankrupt. Maverick can borrow and lend at the risk$-$free

EAR of $6\mathrm{.}50$ percent.

$a-1.$ Should the company buy a call option or a put option on gold?

Call option

Put option

a$-2.$ What strike price would the company like this option to have? $($Do not round intermediate calculations. Omit $ sign in your

response.$)$

Strike price $

b$.$ How much should such an option sell for in the open market? $($Do not round intermediate calculations. Round the final answer to

$2$ decimal places. Omit $ sign in your response.$)$

Open market

$

c$.$ Suppose no options currently trade on gold. What are the transactions needed to create a synthetic option with identical payoffs to

a traded option? $($Do not round intermediate calculations. Round the final answer to $2$ decimal places. Omit $ sign in your

response.$)$

c$-1.$

$|$ shares of stock

c$-2.$ Amount to

$1$$

d$.$ How much does the synthetic option cost? $($Do not round intermediate calculations. Round the final answer to $2$ decimal places.

Omit $ sign in your response.$)$

Synthetic option

$