Suppose there exists a put option that allows you to sell 1,000 at the strike price of $1.45 per . All the market conditions assumed in the previous problem remain valid.

(1) Show how you can construct a risk-free hedge portfolio using a U.K. bond and the put options on . What is the future dollar value of the hedge portfolio?

(2) Determine the fair price of this put option using the arbitrage argument.