You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 50 at year-end. XYZ currently sells for 50. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 4%. 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.)
Cost to purchase $
b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Cost of the protective put portfolio $
| You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of 50 at year-end. XYZ currently sells for 50. Over the next year, the stock price will either increase by 10% or decrease by 10%. The T-bill rate is 4%. 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.) |
| Cost to purchase | $ |
| b. | What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Cost of the protective put portfolio | $ |
Related questions
| You would like to be holding a protective put position on the stock of XYZ Co. to lock in a guaranteed minimum value of $107 at year-end. XYZ currently sells for $107. Over the next year the stock price will increase by 9% or decrease by 9%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Co. |
| 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?
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