You own a stock with a current price of $100 per share.

The following options are available on this stock:

A one-year call option with an exercise price of $90 is selling for $13

A one-year call option with an exercise price of $90 is selling for $13

A one-year call option with an exercise price of $107 is selling for $5

A one-year call option with an exercise price of $110 is selling for $2

A one-year put option with an exercise price of $90 is selling for $3

A one-year put option with an exercise price of $95 is selling for $5

A one-year put option with an exercise price of $110 is selling for $11

a.

i. How would you construct a zero-cost collar for your stock?

ii. What is the maximum gain possible in one year for the stock with the collar?

iii. What is the maximum loss possible in one year for the stock with the collar?

b.

i. How would you create a risk free investment

ii. What is the effective annual return on this risk-free investment?