Please show all work. You buy the stock at a price of $43 and at the same time y

ID: 2621083 • Letter: P

Question

Please show all work.

You buy the stock at a price of $43 and at the same time you buy a put option with an exercise price of $40, paying a premium of $ 2.

-What is your total cost at the beginning for buying both the stock and the put option? Consider this as your total wealth.

-If the stock price falls to $30 and you exercise the put, what would be your final wealth in this example?

-What is your maximum total loss in dollars if the stock price falls to $10 in the market?

-What is your maximum total loss if the stock price goes down to zero?

a. total price = 43 + 2 = 45

b. final wealth = 30 + (40 - 30) = 40

c. loss = (43 - 10) - (40 - 10) + 2 = 5

d. loss = (43 - 0) - (40 - 0) + 2 = 5

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.