You would like to be holding a protective put position on the stock XYZ. The stock XYZ is currently selling for $120. Over the next year, the stock price will either increase by 10% or decrease by 10%. The exercise price of the put option is $125. The risk free interest rate is 3% per year.

A. What is the price of the put option?

B. What is the cost of the protective put portfolio? What will be the payoff and profit of the protective put portfolio? [Hint: Use a tabular format to tabulate the payoff for S(t) < X, and for S(t) > X, where X is the exercise price of the put - option]

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