You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $240 at year-end. XYZ currently sells for $240. Over the next year, the stock price will either increase by 7% or decrease by 7%. The T-bill rate is 3%. Unfortunately, no put options are traded on XYZ Company. Required: 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.) Answer is complete but not entirely correct. Cost to purchase $ 1.53 x b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. $ 110.53 x Cost of the protective put portfolio
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $240 at year-end. XYZ currently sells for $240. Over the next year, the stock price will either increase by 7% or decrease by 7%. The T-bill rate is 3%. Unfortunately, no put options are traded on XYZ Company. Required: 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.) Answer is complete but not entirely correct. Cost to purchase $ 1.53 x b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. $ 110.53 x Cost of the protective put portfolio
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 $240 at
year-end. XYZ currently sells for $240. Over the next year, the stock price will either increase by 7% or decrease by 7%. The T-bill rate
is 3%. Unfortunately, no put options are traded on XYZ Company.
Required:
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.)
Answer is complete but not entirely correct.
Cost to purchase
$ 1.53 x
b. What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Answer is complete but not entirely correct.
110.53 x
Cost of the protective put portfolio
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