PROBLEM 9

You have bought 1 share of stock for $67.74 and 1 put option on the same stock. This portfolio is called a protective put. The option has an exercise price of $60, costs $2.45, and expires in 8 months.

1) What is your profit from buying the stock if the stock price is $20 in 8 months (in $)? Ignore the option for now.

2) What is your profit from buying the option if the stock price is $50 in 8 months (in $)? Ignore the stock for now.

3) What is your total profit if the stock price is $100 in 8 months (in $)?