11 10 points eBook References Problem 21-32 (Algo) You would like to be holding a protective...

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11 10 points eBook References Problem 21-32 (Algo) You would like to be holding a protective put position on the stock of XYZ Company 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 12% or decrease by 12%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Company. Required: 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? c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X-107? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put. 11 10 points eBook References Problem 21-32 (Algo) You would like to be holding a protective put position on the stock of XYZ Company 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 12% or decrease by 12%. The T-bill rate is 5%. Unfortunately, no put options are traded on XYZ Company. Required: 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? c. What portfolio position in stock and T-bills will ensure you a payoff equal to the payoff that would be provided by a protective put with X-107? Show that the payoff to this portfolio and the cost of establishing the portfolio match those of the desired protective put.