The current price of one BSS share is $34.33 and over the next month the share price will either increase by 7.2% or decrease by 5.9%.

A European put option on an BSS share will expire at the end of one month. The strike price is $33.85. MQBS shares will not pay any dividends during the next month. You can borrow money today for one month at a rate of j12 = 6% p.a.

QUESTION 15 [3 marks] Consider the replicating portfolio (that is, the investment strategy which will give identical payoffs, at the end of one month, to the put option) that involves selling h shares today, and lending out $B for one month. Find the values of h and B (Round your answers to five decimal places). Select the correct answer.

a. h = 0.326756 B = 11.965376

b. h = 0.343649 B = 12.583977 c. h = 0.351510 B = 12.584374

d. None of above answer is correct.

QUESTION 16 [2 marks] Which of the following statement is correct?

a. This put option value will increase if the strike price is lower. b. This put option value will decrease if the term to expiration is longer.

c. The potential movement of the BSS share has no impact on the option price. d. None of above statement is correct.