Part A $(6$ marks$)$

Company XYZ$$s stock is currently selling for $$60$ per share. The historical variance of returns for

the company XYZ is $20\%$ compared to the historical market variance of $15\%.$ The current one$-$year

Treasury bill rate is $3\%.$ Assume that all of the standard Black$-$Scholes Option Pricing Model

assumptions hold. What is the current value of a put on this stock if it has an exercise price of $$55$

and expires in one year?

Part B $(4$ marks$)$

The options trader is writing covered calls to earn a premium but wish to protect himself from an

unexpected sharp drop in the price of the underlying security. Which option strategy can the trader

enter into $?$