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Joe buys a share of stock at S0, buy a 6-month put option for $P

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1) Joe buys a share of stock at S0, buy a 6-month put option for $P on the same stock with a strike;price X = $50, and write a 6-month call option for $C with a strike price X = $50. Joe;spends a total of $48 to establish the entire portfolio. Assume that the stock does not pay;any dividend during the 6-month period. What is the risk-free interest rate that makes the;put-call parity hold?;2)You have $1,000 to invest for six months. You can buy stocks of Peach, Inc. The stock;price is $100 per share. To protect you from losing too much of your investment, you also;purchase put options each for $1.00 with a strike price of $90. To fund this put, you also;write and sell call options on the stocks each for $1.00 with a strike price of $105. What;is the maximum profit and loss for your position? Draw the profit and loss diagram for;your strategy as a function of the stock price at expiration (assume that stock investment;put and call options have the same expiration date).;Additional Requirements;Min Pages: 1;Level of Detail: Show all work

 

Paper#21882 | Written in 18-Jul-2015

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