You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 80 at year-end. XYZ currently sells for 80. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 3%. Unfortunately, no put options are traded on XYZ Co.

a. How much would it cost to purchase if the desired put option were traded? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question

You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 80 at year-end. XYZ currently sells for 80. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 3%. Unfortunately, no put options are traded on XYZ Co.

a. How much would it cost to purchase if the desired put option were traded? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 80

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