Please Answer Questions A, B, C, D, E, F

Options: Suppose that Carnival Cruise Line (CCL) currently is trading

at S = $15 per share. You feel that one year from now (T = 1) the

price will either rise to S =$20/share (if coronavirus issues moderate)

or fall to S =$10/share (if coronavirus concerns stay high). Say that the

risk free rate is 0% (EAR) over the next year.

Consider a European put on CCL expiring in one year with a strike

price of $15.

a. What are the payoffs of the put at T=1 in each of the

two cases(S =$20 or S =$10)?

b. Do you think the expected return of the put would be

positive or negative? Explain.

c. Find the of the put.

d.Using any method you like, find the price of the put.

e. Suppose that you have an idea for a party planning

project. The project will require an investment of $10,000 right

now. You reason that one year from now, the payoff of the project

will be $50,000 if coronavirus issues moderate. The payoff will

be $0 if coronavirus concerns stay high. For the purpose of this

problem, assume that CCL's price is perfectly aligned with

coronavirus concerns and these are the only two possibilities.

Also assume that you can get a 0% loan for any capital that you

might need to raise. Should this project be done? Explain.

f. Consider again part (e). Suppose that you are very

pessimistic about current coronavirus vaccine research and feel

that the market is too optimistic about the possibility of a vaccine.

Would this change your answer to (e)? Why or why not?