Question: Question #5a (show your work) Consider a stock priced at $50. There are several call and put options available that have time to expiration of

Question #5a (show your work) Consider a stock priced at $50. There are several call and put options available that have time to expiration of six months. At-the-money puts cost $1.80. There are no dividends on the stock and the options are European-style. Assume that all transactions consist of one contract or 100 shares (i.e. 100 options). Suppose you buy an at-the-money put option contract, and hold it to expiration.

(i) What is the breakeven stock price at expiration on the transaction? Assume that the risk-free rate is practically zero. a. $50.00 b. $51.80 c. $48.20 d. $1.80 e. stock price at expiration doesn't matter

(ii) What is your net profit/loss if the stock price at expiration is $49? Assume that the risk-free rate is practically zero. a. -$180 b. +$100 c. -$100 d. +$80 e. -$80

(iii) What is your net profit/loss if the stock price at expiration is $51? Assume that the risk-free rate is practically zero. a. -$180 b. +$100 c. -$100 d. +$80 e. -$80

(iv) What is the maximum possible profit to you on the transaction? Assume that the risk-free rate is practically zero. a. $180 b. $5000 c. $4820 d. infinity e. zero

(v) What is the maximum possible net profit to the other party (the person who sold you the contract)? Assume that the risk-free rate is practically zero. a. $180 b. $5000 c. $4820 d. infinity e. zero

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