Nikil The common stock of the P.U.T.T. Corporation has been trading in a narrow price range for the past month, but you are convinced it isgoing to break far out of that range in the next 6 months. You do not know whether it will go up or down, however. The current price ofthe stock is $100 per share, and the price of a 6 month call option at an exercise price of $100 is $5.60.Required:a. If the semiannual risk-free interest rate is 3%, what must be the price of a 6-month put option on P.U.T.T. stock at an exercise price of$100? (The stock pays no dividends.)b. What would be a simple options strategy to exploit your conviction about the stock price's future movements? How far would ithave to move in either direction for you to make a profit on your initial investment?Complete this question by entering your answers in the tabs below.Required ARequired BWhat would be a simple options strategy to exploit your conviction about the stock price's future movements? How far wouldit have to move in either direction for you to make a profit on your initial investment?Note: Do not round intermediate calculations. Round your answer to 2 decimal places.StrategyPrice change for profit< Required ARequired B >

b)The simple option strategy to exploit should be Long straddle. It will be best to have maximum…

Answered: The common stock of the P.U.T.T.…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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