Question: Consider a 1000-strike put option and a forward contract on the S&R index with 6 months to expiration. The current index price is $1000. The

Consider a 1000-strike put option and a forward contract on the S&R index with 6 months to expiration. The current index price is $1000. The put writer receives the premium of $74.20 and the forward price is $1020. The annual interest rate is 4%.

a. Verify that the S&R index price at which the profit diagram of the purchased put option intersects the x-axis is $924.32.

b. At what price of the S&R index the long put option and the short forward contract have the same profit?

Derivatives

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