In: Finance
Richards Inc. stock currently trades for $40, but you believe the company's earnings will decrease dramatically in the next six months which in turn will cause the company's stock to depreciate. Six-month European call options on the stock have an exercise price of $45 and a premium of .75. The annual risk free rate is 3%. You want to create a portfolio that mimics the payoff of owning a 6-month European put on on the stock. Which of the following steps must you do in order to achieve this payoff?
What should be the price of a six-month European put option with an exercise price of $45 according to put-call parity? Round intermediate steps to four decimals and your final answer to two decimals. Do not use currency symbols or words when entering your response.
Find your portfolio's profit/loss if Richards stock sells for $32 at the end of six-months. Round intermediate steps to four decimals.