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solution

You would like to be holding a protective put position on the stock of XYZ Company 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 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.)

b.What would be the cost of the protective put portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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