Question: You have been tasked with producing a report on the pricing of potential option investments being considered by your investment fund employer. The asset underlying

You have been tasked with producing a report on the pricing of potential option investments being considered by your investment fund employer. The asset underlying the options is a stock (RCOP) that has a current price of $35 and is expected to move up or down 25% during the upcoming year. The risk-free rate is 1.5% (APR with semi-annual compounding).

a) Your boss is enthusiastic about the put option and tells you that buying the proposed put option means the investment fund will not lose any money if RCOP falls below $30 over the next year. What would you say to your boss in response?

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