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You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $ at yearend. XYZ currently sells for $ Over the next year, the stock price will increase by or decrease by The Tbill rate is Unfortunately, no put options are traded on XYZ Company.
Required:
a Suppose the desired put option were traded. How much would it cost to purchase?
b What would have been the cost of the protective put portfolio?
c What portfolio position in stock and Tbills will ensure you a payoff equal to the payoff that would be provided by a protective put with Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.
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Suppose the desired put option were traded. How much would it cost to purchase?
Note: Do not round intermediate calculations. Round your final answer to decimal places.
tableCost to purchase,$
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