You would like to be holding a protective put position on the stock of XYZ Company to
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Question:
You would like to be holding a protective put position on the stock of XYZ Company to lock in a guaranteed minimum value of $ at yearend. XYZ currently sells for $ Over the next year, the stock price will either increase by or decrease by The Tbill rate is 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?
b What would be the cost of the protective put portfolio?
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