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Rachel is considering an investment in Yonan Communications, whose stock currently sells for $70. A put option on Yonan's stock, with an exercise price of $65, has a market value of $3.10. Meanwhile, a call on the stock with the same exercise price and time until expiration has a market value of $9.40. The market believes that at the expiration of the options, the stock price will be $60 or $75 with equal probability. The data has been collected in the Microsoft Excel Online file below.

A) What is the premium associated with the put option? The call option? Do not round intermediate calculations. Round your answers to the nearest cent.

The premium associated with the put option: $ (fill in the blank)

The premium associated with the call option: $ (fill in the blank)

B) If Yonan's stock price increases to $75, what would be the return to an investor who bought a share of the stock? If the investor bought a call option on the stock? If the investor bought a put option on the stock? Do not round intermediate calculations. Round your answers to two decimal places.

Investment	Returns
Own stock	(fill in the blank) %
Buy call option	(fill in the blank) %
Buy put option	(fill in the blank) %

C) If Yonan's stock price decreases to $60, what would be the return to an investor who bought a share of the stock? If the investor bought a call option on the stock? If the investor bought a put option on the stock? Do not round intermediate calculations. Round your answers to two decimal places.

Investment	Returns
Own stock	(fill in the blank) %
Buy call option	(fill in the blank) %
Buy put option	(fill in the blank) %

D) If Rachel buys 0.5 share of Yonan Communications and sells one call option on the stock, has she created a riskless hedged investment? What is the total value of her portfolio under each scenario? Do not round intermediate calculations. Round your answers to the nearest cent.

Rachel's investment strategy would yield a payoff of $(fill in the blank), if the ending stock price is $60.00. Her investment strategy has a payoff of $(fill in the blank), if the ending stock price is $75.00. The strategies do not have identical payoffs; therefore; this is not a riskless hedged portfolio.

E) If Rachel buys 0.75 share of Yonan Communications and sells one call option on the stock, has she created a riskless hedged investment? What is the total value of her portfolio under each scenario? Do not round intermediate calculations. Round your answers to the nearest cent.

Rachel's investment strategy would yield a payoff of $(fill in the blank), if the ending stock price is $60.00. Her investment strategy has a payoff of $(fill in the blank), if the ending stock price is $75.00. The strategies

do not have identical payoffs; therefore, this is not a riskless hedged

Options Current stock price $70 Put option exercise price $65 Put option market value $3.10 Call option exercise price $65 Call option market value $9.40 Stock price range: Low price $60 High price $75 Situation 1: % share purchased 0.50 Situation 2: % share purchased 0.75 Calculation of premiums for options Put Call Exercise value Premium Calculation of returns Put Call Stock Return if high price realized Return if low price realized Ending Ending Call Stock Option Calculation of portfolio value under situation 1 Value Value Payoff Low price High price Has riskless hedged investment been created? Ending Ending Call Stock Option Calculation of portfolio value under situation 2 Value Value Payoff Low price High price Has riskless hedged investment been created